How Does Retail Activity Around the World Affect Rental Prices?
The interconnected nature of the high street means that a decline in footfall might seem like a problem solely for the shop that loses revenue, but it can actually have a knock-on effect on the wider community. By looking at both residential rent and commercial rent in relation to retail, we can determine how industry activity – or the lack thereof – can affect rental prices.
Commercial Rent and Retail Activity
It’s clear to see that empty shops and vacant high streets have an impact on cities, which has negative consequences for rental prices. In the UK, the Retail Think Tank reported that a decline in retail activity, leading to closures of shop units, would lead to a lack of new professional spaces being built.
This would, therefore, have an effect on rental prices in the future, especially when demand begins to fluctuate again. Contrasting with this is the softening of rental prices in the UAE due to the GDP growth – yet the market demand will grow due to the relaxation of visa regulations in regards to owning property.
Occasionally, as with British chain BHS, landlords will be urged to reduce the rent of an ailing business. Some 47 of the 164 BHS stores asked for their rents to be slashed by as much as 50%, while 40 more asked for a discount of around 75%. Indeed, a decline in retail activity can lead to commercial rents being reduced in order to help the company survive.
This comes so as to avoid the company vacating and leaving empty units. Of course, high rental prices are more likely to drive away businesses, especially those struggling. Increase in retail supply in the UAE, for example, will mean the industry faces additional pressures, with rental rates likely to fall.
Residential Rent and Retail Activity
Dubai retailer Majid Al Futtaim reported an increase in revenue of 1% in the first quarter of 2019, with a 93% occupancy rate at shopping malls. This is in spite of changing consumer behaviors and a desire for consumers to be more price-focused when shopping.
Comparing the rental prices of somewhere like Dubai with its neighbor Sharjah shows that increased retail activity does make residential rents higher. Accommodation company Bayut illustrates this, with their list of rental prices in Sharjah showing more competitive sums than those in Dubai, with prices in the former being as low as AED 1,200 per month (approximately $325). Despite Sharjah being popular, renters will benefit from the fact that it isn’t as much as a hotspot as nearby Dubai.
Retail activity also has a more surprising effect on renting than previously expected. Strong shopping links in an area increases its value, which in turn increases house prices. Therefore, many are opting to rent instead, which doesn’t see such a huge jump in price based on healthy retailers nearby.
82% of renters surveyed in the US claim that renting is more affordable than buying; a significant increase from the 67% who believed the same thing a year before. This is despite rents increasing due to demand – the demand rose 11%, while prices rose 3% on average in 2019.
It is clear that retail activity has an impact on rental prices. Commercially, a decline in sales could lead to landlords slashing rents in order to save the business. Residentially, retail activity can make properties more expensive. But the retail business is also simultaneously benefitting the rental market, as many are opting to continue renting than to buy.