Strategic Report Portfolio Review continued
Smaller independent retailers have been supported over the year to ensure they are ready to reopen, and we avoid the costs associated with vacant units. Occupational demand was very weak over the year, with vacancy rates increasing as retailers exited leases on expiries and breaks and multi-national retailers such as Debenhams and Arcadia Group disappeared from the high street, further increasing the number of vacant shops. Correspondingly, rental values have declined and retailers with requirements have more choice and can negotiate substantial incentives. We have seen negative ERV growth of -2.8% across the portfolio; however, pleasingly we have been able to increase occupancy, on a like-for-like basis, during this difficult period to 92%. We invested £0.6 million into the retail portfolio during the period to improve space and facilitate lettings. Portfolio activity At Parc Tawe Retail Park, Swansea, over half of our retailers remained open during the lockdowns as they were classed as essential retailers. Both Xercise4Less and Poundstretcher were subject to insolvency proceedings; however, we were able to mitigate the effect by securing JD Gyms and Deichmann Shoes as new occupiers, with a 13% reduction in the passing rent and both of whom have refurbished the units. The one vacant unit, at the end of a terrace, has been put under offer via an Agreement for Lease to the Government, subject to planning, who are taking a new five-year lease, subject to a break in three years, at a rent of £0.1 million per annum, in line with ERV. This means the park is fully let with 70% of the income secured for over five years and three leases benefitting from fixed rental increases. At Angouleme Way Retail Park, Bury, we assisted an occupier by removing a 2022 break option in return for a rent-free incentive, securing income until 2024. Another unit was let to JYSK on a ten-year lease, subject to a break in five years, at a rent of £0.1 million per annum, in line with ERV. We have one unit available to lease, accounting for 21% of the park by floor area in which we have interest. At Briggate, Leeds, where we have two high street retail properties, we
extended both leases in return for a reduced rent securing income until 2026. The combined rent was reduced by 38% to £0.2 million per annum, which is still 33% ahead of ERV. At Fishergate, Preston, following a comprehensive refurbishment we let the entire first floor to Slaters Menswear on a new ten-year lease, subject to a break at year five, at £0.1 million per annumwhich is in-line with ERV. The property is now fully leased with JD Sports and Tessuti on the ground floor. Bridge Street, Peterborough, was sold in December. The property comprises two retail units, with one let to TK Maxx who are vacating in June 2021 and the other vacant and previously occupied by New Look. The asset was sold for £4.0 million, 30% ahead of valuation. Our largest retail void is the unit within Stanford Building, London, (now reclassified as an office), which has been refurbished and is being marketed. The unit is in a prime Covent Garden location and provides unique space arranged over two floors. We have had some interest, but expect better terms as the lockdown eases. Outlook The retail and leisure sector has undergone a severe structural change, which has been accelerated by the Covid-19 pandemic. There is an oversupply of floorspace, especially in the shopping centre and high street sub-sectors. Demand will be there for prime well-configured space, with secondary units being unable to attract occupiers. This stock will have to be repurposed and planning law has changed to make this easier; however, with such a severe oversupply we cannot see the position changing in the short-term. We are however more positive about the retail warehouse sector, where we have 60% of our retail and leisure weighting. We have been successful in securing new occupiers over the year and our parks have remained busy. Valuations, which have moved down over the past few years, are now stabilising. With the lockdown ending and most retail and leisure having re- opened, improving consumer confidence will give businesses the help they need to start recovering.
Retail and Leisure The retail and leisure sector, which accounts for 11% of the portfolio, delivered the weakest performance of the year. The Covid-19 pandemic and subsequent lockdowns have had a severe effect on an already weak bricks and mortar retail and leisure market, with changing shopping habits accelerating the demand for warehouse space. Against this tough backdrop, we had success at our retail warehouse parks which account for 60% of our retail and leisure portfolio. Retail warehousing has been more resilient due to the ability of shoppers to be able to park and the size of the units being better suited to social distancing. On a like-for-like basis, our retail and leisure portfolio value decreased by £7.8 million or -9.3% to £76.3 million, and the annual rental income decreased by £0.5 million or -7.0% to £6.4 million. The portfolio has an average weighted lease length of 9.0 years and £0.6 million of reversionary potential to £7.1 million per annum. The retail parks in Bury and Swansea were comprehensively refurbished in 2020 and this has helped us to attract new occupiers and grow the passing rent on the retail warehouse portfolio by 1.3%, with only one vacant unit at year end in which we already have interest. We have also worked with a number of our occupiers to extend leases in exchange for upfront incentives.
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