Retail Insights Q4 2023 – Q1 2024 Surrey

Surrey boasts approximately 25 million square feet of retail space spread across its key towns such as Guildford, Woking, and Leatherhead. With a relatively affluent population of 1.2 million, Surrey offers around 21 square feet of retail space per capita, slightly below the national average. The region maintains a low unemployment rate of 3.3%, further highlighting its economic stability compared to the rest of the UK.

Despite the challenges posed by the pandemic, Surrey's retail market has demonstrated resilience, outperforming many other regions. Positive retail demand has been observed over the past three years, driven by factors like the high-income demographics, increased remote work opportunities, and successful completion of developments like Victoria Square in Woking. Although net absorption of retail space briefly turned negative in the latter half of 2023 due to economic headwinds and the closure of major stores like House of Fraser in Guildford, Surrey's retail vacancy rate remains below the national average at 1.9%.

While a lack of new retail developments is expected to maintain this favourable vacancy rate in the short term, average retail rents are anticipated to experience a gradual decline. Retail take-up has tapered off in recent quarters, yet shopping centres have remained active, with some retailers seizing the opportunity to secure units at lower rents. Examples include Gail's, JD Sports, and Shoezone opening stores in various centres across Surrey. However, Guildford faced a setback when Fenwick withdrew from negotiations to occupy the former House of Fraser space on its high street.

Retail construction activity has slowed down significantly after a period of notable development. The next significant project is likely to occur in Leatherhead, where Kier Property and Mole Valley District Council are collaborating on a £350 million scheme to redevelop Bull Hill and the Swan Centre into a mixed-use complex featuring retail, leisure, and residential units.

Furthermore, there's a growing trend of repurposing shopping centres and former department stores for alternative uses. The former Debenhams site in Guildford, for instance, is set to be demolished for a residential-focused redevelopment, reducing the overall retail space while revitalising town centres with more residents.

Retail investment volumes in Surrey declined throughout 2023 due to higher borrowing costs affecting demand nationwide. Only £86.9 million of retail property changed hands in the region over the past year, significantly below the 10-year annual average of £213 million. Yields have also expanded, evidenced by transactions like the sale of a row of shops on Guildford’s High Street, which yielded 7.5%. Despite this, retail parks and supermarkets continue to attract investor interest, such as Weybourne Group's acquisition of Stag House in Guildford, leased to Lidl and Pets at Home, reflecting a 4.7% yield.

As 2023 progressed, there was a noticeable decline in retail investment volumes, largely due to increased borrowing costs dampening investor demand across the UK. In Surrey, the total value of retail property transactions amounted to just £86.9 million over the past year, falling below the 10-year annual average of £213 million and significantly lower than the decade-high figure of £320 million recorded in 2022. Alongside this decrease in investment activity, yields have also experienced a shift.

For instance, a row of five shops located on Guildford’s High Street changed hands for £2.7 million in May, yielding a relatively high 7.5%. Throughout the past year, several other shops on the same street have been sold, predominantly falling within the price range of £1 million to £3 million. Notably, consumer spending and investor demand have remained more resilient in affluent towns like Guildford compared to many other areas across the UK.

Despite the overall downturn, retail parks and supermarkets have continued to attract investor interest. An example of this is the recent acquisition by Weybourne Group of Stag House in Guildford, leased to Lidl and Pets at Home, for £17.3 million, showcasing a relatively attractive yield of 4.7%.