2019 certainly hasn’t been a year for the history books in terms of the UK retail industry, at least not for the right reasons, with the news of store closures, administrations and liquidations echoing the years of the global financial crisis (GFC) 10 years ago.

Taking MSCI as a benchmark, during the height of the GFC, shopping centres reported their largest annual decline in rents in the fourth quarter of 2009, with rents falling by 5.2 per cent. As of Q3 19, year-on-year rents are down 5.1 per cent, so it’s clear to see that we are in a not too dissimilar position now.

Of course, the fundamentals shaping retail occupational demand are different to that seen during the GFC, with ecommerce impacting the industry in ways we just couldn’t have perceived back in 2009. However, it does suggest that we may be approaching the worst of rental declines, particularly as the current economic climate is better than 2008/9 irrespective of Brexit uncertainty.

While weak Christmas sales coupled with an election that delivers no political certainty could result in further company voluntary agreements (CVAs), and with it a further drop in rents, a stronger festive trading period with positive Brexit developments could mean the return of rental growth in the latter part of 2020, very much focused on stronger retail locations and centres.

Perhaps the biggest supporter for a return to growth for the better performing retail locations (subject to wider conditions) is the fact that rents in some locations have already been rebased and this rebasing can have significant impact on not only individual store profitability but also the wider profitability of the retailer itself.

In fact, applying a very simplistic 25 per cent value cut to a retailer's lease commitments across a quarter of its stores could boost group operating profit by any average of 28 per cent. As a result, margins, which have been under downward pressure over the last three years, could return to pre-EU referendum levels.

As rents rebase and consequently retail space becomes more profitable, we could actually see a resurgence in retailer activity with brands once again beginning to seek new sites in stronger retail locations, which in turn will then go on to support rental growth. However, the structural shifts shaping retail mean that this growth will lag behind historical averages.

Looking further ahead, where we expect to see even bigger changes in the future will be in how stores are valued, with a move away from the traditional store turnover approach to one that takes into account the impact a physical store can have on a brands profile and online sales.

However, for now it is the impact of the forthcoming Christmas trading period and the outcome of impending political decisions that have the potential to shape the next year in retail and all eyes will be peeled for those first signs of a retail revival in the UK’s prime locations.

Further information

Read more: Spotlight: Shopping Centre & High Street