InFocus: Real Estate Professionals Operating in the Retail & Leisure Sector in 2024

07/12/2023
In 2024 the story for the Retail Sector is anticipated to be a tale of two halves.

Until end June 2024 there will be much grappling with the cost-of-living crisis and then a gradual recovery in certain parts of the economy through the second half of the year which will be accompanied by a gradual shift back towards online retail spend. Businesses, on the other hand, will delve deeper into digital sophistication.

The quest for profitability will drive continuous cost-cutting initiatives, as particularly seen with many larger UK retailers back in 2023. This makes the prominence of the real estate specialist in the sector as vital as they control, and project managed the spend on operational property assets. At the same time AI, strategic partnerships, and the rise of new marketplaces will continue to redefine business models. Data governance, security and privacy will remain at the forefront of operational strategies following a significant spate of cyber-attacks.

Retailers’ interaction with their specialist real estate teams will be vital not just in terms of day-to-day operations and sensible property management but also in respect of enhancing supply chain activities and managing costs across the business.

Technological innovation and changing consumer expectations always drive new ways of doing things. Creative use of AI and data science typically make profound impact within most operations. Dynamic pricing, powered by real-time data analytics, promises to revolutionise the way retailers set and adjust prices. The rise of social shopping, blending the lines between social media and e-commerce, will likely be a key theme in 2024. For the Heads of Property these many challenges ensure that they are in play as a central part of the retailer’s operations.

The same principal operates in the Leisure Sector where operators across the sub-markets are at various stages of recovery and confidence is growing. There is a wall of capital targeting the sector with a surplus of demand over supply for operational platforms. Visibility of the recovery, and understanding of future performance, will continue to be the key predictor of investment appetite and pricing in each leisure sub sector. The ability to plan, convert and regenerate sites is crucial and the real estate experts must be individuals who can go well beyond assessing the estates and property management implications of running a portfolio of operational real estate assets.

Urban leisure investment yields will further stabilise in 2024 but are unlikely to recover to 2019 levels until the debt markets fully recover. The leisure sector does carry high debt levels, whilst finance costs have increased. Cost inflation and pressure on consumer spending is further squeezing operators. Leisure operators always review debt positions, and some will take additional debt, or equity, to bridge gaps in their balance sheet. Meanwhile the omnipresent operational, debt and macroeconomic pressures will see the Leisure Sector look to access cash locked up in assets. Operators will look to sale and leasebacks, or ground rent transactions to raise capital without losing sites. As ever the expert real estate professionals will be at the heart of the operation.

In terms of the sub-sector outlook the strong performance of the UK holiday park market continued for much of 2023. The sector is well placed for 2024. With cinemas smaller operators such as Everyman, Curzon and Tivoli continue to expand, albeit selectively and principally into urban areas whilst regional operators continue to expand. We expect the health club sector to continue to consolidate as it recovers from the Covid interruption. With pubs, operators are no longer getting back to 2019 profits but just surviving. The urban market has stabilised to a degree. Hotels and specialist leisure operators in sport, for example, continue to recover strongly and their need for competent and highly capable real estate professionals remain.

psd has recruited Real Estate professionals into the Retail & Leisure sectors for 30 years and operates at Board and senior management level. For further details please contact Peter Hardy, Managing Director at peter.hardy@psdgroup.com and 020 7970 9701 or Martin Cragg, Director at martincragg@psdgroup.com.

About

Peter Hardy

Managing DirectorProperty & Construction