How has ecommerce affected lending to the retail sector?

It has been five years since Mary Portas published her landmark report on how to revitalize the high street. aced with the unrelenting march of ecommerce, it is perhaps unsurprising that this initiative has had little long-term impact.

With this in mind, it is interesting to study how a continuing shift in sales from high street property to the internet has affected the attitude of lenders towards town centre leisure and retail property.

High street sales saw significant growth in the 1990s, partly driven by consumers taking on more debt to fund their spending. This trend slowed following the financial crash and many town centres have reported reduced footfall as a result. However, a recent bounce in credit card debt to an 11-year high suggests that retail assets on the high street are not necessarily on a permanent downswing.

However, the continuing challenges to the high street cannot be ignored, especially in light of Brexit. The latest quarter-on-quarter figures from the ONS showed that retail sales have fallen by 1.4%. This is the second fall in a row and the largest since March 2010. Meanwhile, online sales have increased by 20.7% since this time last year.

Clearly Brexit has further contributed to the cautious approach of lenders. Many retailers are unwilling to expand their operations until they know more about the UK’s future relationship with the EU. Some fear that – in the short term – Brexit uncertainties may dampen consumer confidence. In the longer term, the weaker pound could raise the costs of imported goods, which retailers will either have to absorb or pass on to consumers. Combined with an increasing wage bill, you can understand why the appetite of retailers to lease more space is restrained.


With questions raised over how quickly vacant space can be let, it is hardly surprising that some lenders are approaching the retail sector with caution.

But before writing off the value of retail assets, let’s look at some positive points. Growth in credit card debt rose to 9.3% in February, up from 1.6% five years ago (source: Bank of England), which means consumers are borrowing and spending more as the economy continues to recover from the financial crash. Despite the challenge of the internet, much of that new spending will still be channelled through the high street.

A report from Cushman & Wakefield also showed that high street rental growth is positive at 1%, up from -2% five years ago. This, of course, reflects stronger demand in some parts of the UK rather than all town centres.

Different local economies present lenders with different levels of risk. Yield premiums are lowest in city centres, such as London and Manchester, and prime retail areas, including Guildford and Oxford. These areas reflect the lower risk associated with the value of the underlying asset. Meanwhile, premiums are much higher in the smaller market towns. This suggests retail spending is being focused in higher-income, more urban areas, with larger catchment areas.

The decline of the high street in recent years also appears to have been geographically uneven. Regional ‘persistent vacancy rates’ – whereby a unit has been vacant for more than three years – are high in the North East (5.8%) and low in the South West (2.7%). London has an even lower rate (1.7%). This pattern should help direct lenders to the best opportunities.

Lenders are right to be cautious when making loans secured on retail property. However, the high street still has a sense of theatre and service that the impersonal nature of online shopping is unable to recreate. This may be part of the reason why new positive trends are emerging and the high street is showing signs of rebounding in wealthier, more urban areas.

It is also important to remember that even in the North East – where the high street is suffering most – there will still be innovative entrepreneurs with every chance of succeeding. At Ortus, we are still keen to work with these operators and take the time to understand their vision. If the case is compelling, we can see beyond the tick-box lending culture and give these businesses the support they need.

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