Our Market
What is the local shopping market?
The local shopping sub-sector of the retail market mostly caters almost exclusively for local communities and tends to serve a limited catchment area. Local shopping is focused on suburban parades in major urban centres and villages. It can also include niche retail areas in city centres serving local or specialist needs. An important distinction from the traditional high street is that local retail tends to lack comparison shopping. In contrast it caters for top-up, meal solution and distress purchases. It is characterised by comparatively small unit sizes and a high proportion of independent traders.
Local shopping is set to benefit from a number of demographic trends including the ageing population and the drive towards creating a greener society. Local shops provide ageing consumers an opportunity for social interaction. Green issues are forcing everyone to think carefully about car travel and congestion and road charging schemes are likely to favour the local shopping market.
The market value of the sub-sector is estimated at around £20bn, equivalent to around 15% of the overall retail market. The local shopping market has traditionally been the preserve of the smaller, often locally based investor. With little competition from institutional or larger property companies, the market is highly fragmented and underdeveloped. In buying in this market we are able to exploit pricing inefficiencies when properties are subject or limited, or in some cases, no marketing. Our professional approach to asset management also provides us with opportunities to generate above average returns for our shareholders.
A key characteristic of the local shopping market is the affordability of rents. Research from Colliers CRE found rents were, on average, below 7% of turnover. This compares very favourably with typical high street ratios which lie in the range of 8-15% depending on the pitch and retailer. In our portfolio the average shop rent is less than £13,000 pa (or £250 per week), and under £12 psf.
LSR is the only REIT focused on investing in local shopping retail property. LSR has already established a leading position in the local shopping sector since its formation in January 2005, and believes that there is an opportunity for first mover advantage as the leading REIT in this sub-sector.