When deleveraging continues, which will be the case, consumer spending will most likely drop. Hence, retail sales will drop too. How will continuing deleveraging affect consumer spending, retail sales and rental values of retail property? Consumer spending will be curbed, affecting retail sales quite dramatically, which will in turn put a burden on rental values. Retailers will suffer or collapse, leaving landlords with vacancies, rent unpaid and lower ERV (expected rental value) on their real estate. Prime pitch retail locations on our high streets will remain attractive; secondary locations will suffer the most from yield shifts and dropping ERVs. However, also prime location are likely to see some pressure on the rental values.
Where does this lead us? Retail property investments are more vulnerable to decreasing consumer spending than any other sector. On the short run (read: during the recession), prices will decline and it is likely that some properties become available for acquisition at quite attractive prices. On the long run, retail property and rental values are likely to rise again. Property investors with strong stomachs may want to benefit from the current summer sale.