To be clear, today’s retailers aren’t facing anything exactly like the crisis in mortgage backed securities of 2007 onwards, but they are facing something with a similar dynamic.
A recent article in the Financial Times explained how this applies to the world of UK shopping centres, as investors are now shorting not just the equity, but also the bonds of Intu Properties, who own the Trafford Centre in Manchester, alongside 19 other shopping centres in the UK and Spain.
To emphasise the scale of these bonds, there is a single £485m security held against Intu’s Metrocentre in Gateshead – with a short interest currently at 13% of outstanding securities, according to the FT report. Shorting has reached even higher levels in the listed equities of Intu and its peers.
It’s not just landlords either. This is all too clear in another realm of the Financial Times, the annual readers’ stock picking competition. Many of the best performers had decided to short the shares of leading retailers – with a short position in Debenhams placed six months ago now yielding around a 100% profit. It pays to bet against the shops, as well as actual shopping centres.
And this is all before the retail discounting season starts in earnest with Black Monday, Christmas etc…
So what will happen next in the interconnected world of retail and property? What should investors do, beyond simply betting on further falls? What should intelligent property owners and investors do, to build and own the commercial real estate of the future?
Retail is becoming a completely different experience – with an integrated omnichannel approach that delivers a more ‘experiential’ world of shopping. Retailing environments, will become more integrated with homes and workplaces. This will be a painful period of adjustment.
In the meantime, investors need to be prepared. Investment funds will need to chart a course through the changing landscape, and portfolio managers will need to communicate more clearly than ever before to keep increasingly sceptical investors on board.
Location matters too. Today’s investment reports and portfolio analysis obsess on the minutiae of a building, but often forget the wider economic environment in which it sits and how that is evolving.
In a world where one town and one month are rarely the same as another, investors are buying into a postcode as much as they’re buying into a building. That’s one reason why JPES Partners has built our new locational analysis tool, Evaluate.
Investors need intelligence, but they must also act intelligently. Smooth sailing is over and a storm’s brewing on the horizon with a potential hurricane of bonds, bargains and Brexit – and news has just broken that the UK economy shrank in Q2.
If it keeps on raining, the levee’s going to break.