In a week that saw further carnage on the high street, let’s look on the bright side. It’s easy to forget that there is one.
That’s not to play down Peacocks’ collapse, another staging post in a long and painful process of restructuring the retail sector. Nor should we ignore the reappearance of the ghost of collapses past. That 13% of Woolworths stores remain empty three years after its demise is a chilling reminder that there are no quick fixes out there.
That said, there are plenty of reasons for relative optimism in 2012. Here are three of them.
1. Property as an investment continues to offer enviable returns. Unlisted property funds outperformed equities in 2011, with pooled property funds delivering an annual return of 7.1%, according to the IPD/AREF UK Pooled Property Fund Index, versus equities’ 3.5% contraction. Direct commercial property performed even better, returning 8.1%. What’s more, pooled fund capital returns stayed positive in the fourth quarter, unlike the underlying market. The UK and especially London remain attractive. International opportunity players such as Brookfield are serious in their intentions. Prices may need to fall a little first, but negative sentiment will help deliver that fall. Across the year, only REITs fared worse than the wider stock market, shrinking 8.1%.
2. Speaking of REITS, most of their chief executives will tell you (whether you ask or not) that the market doesn’t fully understand their unique nature and fails to price them properly. There are signs that the market is beginning to acknowledge that. In a note this week, analysts at Peel Hunt talked of value in the property sector. “The average real estate stock is trading at 30% discount to net asset value, pricing in sharp property falls of circa 10-15%, which we do not see as likely.” (Apropos of very little, and while we are being positive, I much preferred the title of the note “Positive returns likely: outlook not as dim as ratings imply” to the headline in one financial newspaper earlier in the week: “Whatever your expectations, lower them”).
3. Lowered expectations are not something four-time Olympic winner Matthew Pinsent has any time for. At the BCO dinner on Tuesday, he warned that London can be too cynical but predicted Olympic expectations would soon rise. Thursday marked a major legacy milestone with the announcement of a three-strong shortlist for the 1m sq ft Olympic media centre. Forget all the argument about the stadium, it has always been the media centre that has been at most risk of being labelled a white elephant. The consortia competing for gold span technology, fashion and sport: the UK Fashion Hub, backed by Revolution Property, the Decathlon Sports-backed Oxylane Group and iCity, a Tech City-style bid backed by a data centre developer, make up the shortlist.
The winner will be the one that can best prove it can deliver an enduring legacy, thousands of “high-quality” local jobs and training opportunities, and support the government’s ambitions for a Tech City that stretches from the Square Mile to Stratford.
With a fashion wholesaling centre, fashion college and e-tailing centre, the Fashion Hub bid, anchored by Dutch company Brandboxx and Workspace Group, ticks the boxes. Decathalon’s offer perhaps less so.
But it is Infinity, backed by Lord Rothschild’s Rothschild Investment Trust, that may prove most seductive. It is proposing a cloud computing centre with post production and graphic design in the broadcast centre, with the press centre to be used for research.
Just as Pinsent hopes the Games will provide a fillip to the country, the letting of one of the Olympic Park’s more challenging assets should encourage this industry.
Will it be enough to trigger the second-half recovery that many agents are predicting? In a glass-half-full frame of mind, there’s only one answer to that.
