Europe's landlords to see rents drop as online retail thrives: AXA

Mon Feb 18, 2013 10:31am EST
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LONDON (Reuters) - European shop landlords will have to accept lower rents in coming years to help besieged retailers cope with the rise of online shopping and weak consumer spending, French insurer AXA's property arm said on Monday.

Property owners in Spain are under most pressure, AXA Real Estate, Europe's largest real estate fund manager, said in a report called "Retail will never be the same again".

It said online shopping in countries such as France and Britain has become a "substantive threat" to store profitability, which could leave some retailers unable to afford rents that landlords would then have to reduce.

Property investors had underestimated the impact of internet shopping and the economic downturn left them "unable to differentiate between the weakening of physical sales due to the shift online from those resulting from the current recessionary environment", the report said.

"Ninety percent of future growth in retail sales in the UK, France and Germany from 2012-2016, or 91.5 billion euros ($122.2 billion) of the 101.2 billion euros total, will be captured by online spend," said AXA, which manages 43 billion euros ($57.41 billion) of property assets.

Spain is likely to see sales per unit area fall by 5.7 percent by 2016, ahead of France, Italy and Germany at 5.5, 4.4 and 3.2 percent respectively, said AXA, using a calculation comparing the change in physical stores sales to the change in retail floor space.

Such declines would spur retailers to slash property costs to remain profitable, forcing rents to fall. Occupancy costs in Spain, for example could decline by as much as 18 percent over the period, while costs in France could drop by 17 percent.

"Retailers will be forced to reduce occupancy costs ... For some retail units where profits are, in an economic sense, exceptional, rents will be maintained, but for others, affordable rents could drop close to zero," AXA said.

That means it would be unviable for retailers to operate from such units unless they were not charged rent.   Continued...

A QR code is seen on goods for sale during the launch of a temporary "pop-up" Christmas shop run by online giant eBay on Dean Street in Soho, central London November 29, 2011. REUTERS/Neil Hall