Pace of growth in high street rents falls

The growth in high street shop rents is continuing to slow, with retailers fretting over the prospects for consumer spending and favouring out-of-town sites.

Rent on high street shops is now increasing at about 0.5 per cent a year, down from about one per cent a quarter before, according to the latest survey by the property consultancy Donaldsons.

While consumer spending has remained fairly resilient, retailers are still uncertain of the long-term effect on consumer confidence of issues ranging from the war on terror through to the collapse in pension fund values, the survey found.

Bryan Duncan, the head of retail at Donaldsons, said: "For retailers, slower rental growth is good news. Rising rents on high street properties had been cutting into retailers' margins and undermining profitability."

Over the course of the past 12 months, the number of new high street shop units required by the top 250 retailers fell by 10.7 per cent to 2,612. Furthermore, by the end of the last quarter, total returns on shops had fallen to 13.4 per cent a year, down from 15.3 per cent a year at the end of the previous quarter.

But rental growth on retail warehouses and shopping centres has stayed relatively strong at 3.3 per cent a year and 3.9 per cent a year respectively. In the previous quarter, rental growth for retail warehouses rose to 4 per cent from 3.8 per cent while rental growth for shopping centres was 4.5 per cent.

"Retailers as a whole have become increasingly sensitive to property costs. Whilst some operators have been bravely paying up for prestige sites, we are seeing more determination to open at sites that offer the best balance between profile and price," Mr Duncan said.

Retailers were last week left facing rising property costs after changes to stamp duty were unveiled in the Budget. From 1 December, commercial property leaseholders will have to make an up-front stamp duty payment equivalent to 1 per cent of the total rent payable during the life of the lease.