Comparison retailing

There’s a piece today in the FT that hits two areas of interest. The first is how structural change is affecting shopping centres’ rents, capital values etc. The second is the perennial story of lagging valuations. Robert Duncan, an analyst at Numis Securities, is quoted extensively.

“The valuers are still playing catch up when it comes to retail valuations more broadly. We are starting to see retail properties trading at weaker valuations, which may be the start of a trend.

“The role of physical retail is changing hugely. It’s not worth what it was before — space is less productive and it’s more about showrooming than selling.”

Many landlords are offering incentives such as rent-free periods to attract good retail tenants, which may not be fully taken into account by valuers, he said.

Valuations were hit slightly by an increase to stamp duty on large commercial property transactions in March, while worries over the EU referendum have also affected the property investment market.

However, Mr Duncan said there were wider concerns over whether retail property values could continue rising given the structural impact of ecommerce on the industry. Property revaluations due later this month would shed more light on the direction of prices, he said

Arguably property valuers always playing catch-up? It’s inherent in the valuation process.  They tend to rely on comparables that have been sold.  But – they were sold in the past.  So – comparables tell us what the market pricing level was and not necessarily what it is.  Of course, they may incorporate sentiment but the effect of changing sentiment on the value of an asset is tough to put a value on.

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