The growth of internet shopping poses new risks for
investors in UK real estate, according to Aviva Investors. The firm predicts
that, as retailers will require less space, average real
rental value growth will fall to between 0 per cent and -1 per cent a year,
throughout the 2010s and 2020s.
Despite this, Aviva expects demand for high
volume and convenience locations to continue, with major urban centres and
small local convenience venues experiencing sustained or growing occupier
demand. The firm also foresees landlord and tenant relationships becoming more flexible as legacy retailers rebalance
their property portfolios, with temporary store formats becoming more common.
Aviva believes the internet’s power as a marketing tool
potential for companies that embrace multiple sales channels. This, it says,
could lead to new sources of occupier demand for commercial property and
mitigate some of the income risks the internet poses for real estate investors.
It observes that some of the largest firms have been increasing their
distribution floorspace in response to growth in online retailing. Other online
retailers allow customers to collect or return items using lockers or local
convenience stores, which in turn raises footfall at those physical locations.
The firm suggests that equity investors should look
for companies with a successful, multi-channel strategy, noting that some of
the highest-rated retailers in the UK stock market today are those with little
or no high street presence.