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- Bricks-and-mortar retailers are in a fight for survival. Online shopping is transforming retail but at a time when consumption is struggling and the role of consumption in growth is waning. Today’s developments are only the beginning: the speed of change is accelerating
- Equity markets have deeply discounted the value of bricks-and-mortar retailers and their listed landlords whilst the direct real estate market has seemingly paid little notice
- The level of rents and amount of floor space are uneconomic for many bricks-and-mortar retailers
- The UK’s example shows how dramatically this could affect retail real estate portfolios
- Fidelity believes UK retail real estate assets will see a fall in value of 20 to 70 per cent depending upon the nature and quality of the assets. This is driven by (i) 10 to 40 per cent reduction in rents to make them sustainable and affordable for bricks-andmortar retailers, (ii) a de-rating of the sector equivalent to 10 to 30 per cent reflecting the change in risk profile of the underlying tenants and their future cashflows
- The UK market is far from unique. Those countries with high retail space per capita, weakening consumer spending growth, or structural change to GDP away from consumer-driven growth are most at risk of market repricing. After the UK, we are most concerned about the real estate markets in Australia and France