Challenges faced by lenders to UK retail property Click here UK - PowerPoint PPT Presentation

UK RETAIL REAL ESTATE LENDING IN 12 SLIDES Challenges faced by lenders to UK retail property

Click here UK retail is going through tough times to read about whether retail real estate is set to turn a corner -9% Overall consumer confidence in Q4 2018, according to the Deloitte Consumer Tracker Tenant failures and falling rents will erode net operating income. 6.6% 2.1% If, in turn, this has Year-on-year decline in Forecast growth in an impact on the UK footfall in 2018, ecommerce in the UK 22,100 according to retail ability to service from 2018 to 2023, analysis firm Springboard according to CBRE debt, lenders will Retail closures expected in 2019, up from 18,443 have to act" in 2018, according to the Centre for Retail Morgan Garfield, managing Research director, Ellandi

Click here Investment and lending volumes are falling for our view on how lenders could be part of the solution to the sector's woes 19.7% Retail ’ s share of the 60% UK ’ s £127bn of outstanding Drop in UK shopping centre commercial real investment from 1997 to 2018, estate debt in 2017, when total turnover reached which compares with £1.3bn across 34 deals, 27% of the £214bn according to Savills recorded in 2007, according to Cass Business School

Click here The UK has one of the greatest concentrations of for more on lending to retail property in continental Europe retail space in Europe ... Ireland 6.2 Sweden 5.3 UK 4.6 France 4.4 Netherlands 4.4 Portugal 4 Poland 3.4 Spain 3.4 Italy 2.9 Germany 2.3 0 1 2 3 4 5 6 Retail fl oorspace per capita (sq ft) Source: International Council of Shopping Centres, Cushman & Wakefield

... and leads the continent when it comes to ecommerce Internet share of all retail sales by country 26 24 22 20 18 16 14 % 12 10 8 6 4 2 0 UK Netherlands Denmark Germany Czech R Ireland Sweden Finland Belgium France Poland Hungary Italy Spain Portugal 2018 2023 forecast Source: CBRE

Click here Meanwhile, retail property values fell last year ... to read about the lending opportunities in UK retail property Average drop in shopping centre values over 2018, according to CBRE ’ s monthly index 20-40% Expected fall in values for prime retail, 10.5% according to Fidelity International 70% Expected fall in Decline in capital values for secondary growth across retail stock, according to sector in 2018, Fidelity International according to MSCI 5.7%

Click here ... and so did indexed capital growth to read more on UK retail property lending Indexed capital growth in 2018 1.0 0.5 0 -0.5 % -1.0 -1.5 -2.0 -2.5 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 All property All retail Standard retail - south-east Standard retail - rest of UK Shopping centres Retail warehouse Source: MSCI

Some types of retail property have performed worse than others ... Nim quis de Average capital values growth across UK in 2018 masked a range of performances velenisque nitia soluptae lignihilique 30 sed maximinto offic 25 tem quia ipsant ipiet autae quiberum quam 20 volum quia et as Annual capital value growth (%) 15 doloriatur, ommostis 10 et voluptae reseque 5 veles maio blam alitatur? 0 -5 -10 -15 -20 -25 -30 Shops Retail warehouses Shopping centres Central London of fi ces M25 of fi ces Rest of UK of fi ces Industrial Sector average 95th percentile 5th percentile Source: CBRE

... and yields have increased steadily Yields across subsectors of retail property, 2017-18 14 12 10 8 % 6 4 2 0 'Superprime' mall Prime mall Town centre dominant mall Secondary mall Tertiary mall Prime high street shop (outside central London) Q4 2017 Q3 2018 Q4 2018 Source: Savills Research

Investors are placing less emphasis on yield. It is more about the true cashflow and geared returns Ian Malden, head of valuation, Savills

Once more unto the (LTV) breach? “ If you are a senior lender with leverage at 60% and values have moved by 100bps, you might be at 70- 75% LTV now. If they have moved by 200bps, you could be closer to 80-90%. That ’ s most likely an LTV breach. Most facilities will have cure rights and better sponsors will be able to inject some new capital ” Trevor Homes, head of senior lending at debt fund manager DRC Capital

This report was compiled from data collected for our Spring 2019 edition Daniel Cunningham Editor Real Estate Capital daniel.c@peimedia.com +44 (0)207 167 2033 Alicia Villegas Senior reporter Real Estate Capital alicia.v@peimedia.com +44 (0)207 566 5470 Production: Daniel Blackburn Design: Lee Southey