The first significant retail casualty of 2013 dropped this week. No, not Jessops. The collapse of gadget-led chains was the story of 2012. It was Play.com closing its core business that provides a new twist to a familiar tale.
First Jessops. Sad to see it go into administration, yes, but unexpected? No. Insolvency specialist Begbies Traynor said before Christmas that a number of retail chains could fail in the months ahead and talked of 140 companies on its critical list. I’d be surprised if Jessops wasn’t one of those. Consumer caution, fundamental shifts in buying behavior and a poor Christmas led to PwC’s appointment as administrator on Wednesday.
So far, so predictable. And taken at face value, so was Play.com’s decision to shut its core retail business. Ever since the chancellor closed the VAT loophole on low-value products last April, the retailer’s core business had appeared vulnerable.
Of course, the Jessops and Play.com stories are very different. While the former highlights the longer-term demise of a certain type of high street retailer, the latter also represents a trend: the impact government policy can have on a business’s operations. Here it was no unintended consequence, of course. The closure of the VAT loophole was an effort by government to level the playing field between (offshore) clicks and (onshore) mortar. From a fairness point of view, it was the right thing to do. For high street retailers affected, it probably came too late.
If the auction room is a lead indicator for the wider market, grounds for optimism emerged this week. Demand for residential assets drove a 4.5% rise to £3.5bn in turnover across the market last year, according to figures from the Essential Information Group. But the commercial sector grew too. It may only have been by 0.2%, but it was the first increase in two years.
There were more auctions with more lots than in 2011, and more, lower value lots are also likely to be a feature of 2013. But if banks do increase lending – and RBS says it may do so modestly in 2013 – a healthier contribution from the commercial sector should help drive a sharper rise in overall activity.
And more evidence that the economy’s worst is behind us. The net balance of RICS members reporting a rise in overall construction output improved in the final quarter of last year, from minus 3% in Q3 to 6%. It was the first positive Q4 result – on what is non-seasonally-adjusted data – since 2007. More encouragingly, it was also close to the average across the survey’s full 19-year history of 8%. The data suggest that the construction sector had a relatively good end to 2012. Better still from an economic point of view, as Roger Bootle’s Capital Economics points out, was the news that the turnaround was driven by private sector housebuilding and infrastructure, not public sector housing, schools or hospitals.
Private commercial property construction helped offset the dip in public sector activity for 11 of the past 12 quarters. “On past form, this suggests that developers anticipate enough occupier demand to prevent any material falls in IPD all-property rents over the next few quarters,” says the firm. “Meanwhile, vacancy rates among the existing stock of property in most segments remain above average. Accordingly, although the downside risks to rents may be limited, there are few grounds to expect a recovery any time soon.”
It may only be the second week of January, but already the Estates Gazette group is in innovative mood. EuroProperty Trends is a new launch and does exactly what it says on the tin. A free monthly digital-only publication, it is run by Estates Gazette’s sister title EuroProperty in partnership with MIPIM.
Among many other topics, the first issue looks at retail, Russia, Turkey and the hotel market across the continent. Many of you will have received an e-mail with more on this exciting new publication – did I mention the podcast interview with O1 Properties’ Dimitry Mints? Those of you who didn’t can download it for iPad in the Apple App Store or get a digital version.
Damian.Wild@estatesgazette.com
