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Supermarket space race set to continue

Supermarkets now account for 38% of all shops in the development pipeline, up from 25% four years ago, and 39% of space under construction. The upturn in supermarket expansion activity is now broadly based, taking in both High Street and out-of-town stock; new development and new store acquisition.

Although the speculative shopping centre and retail park pipeline cumulatively declined by 13.6 million sq ft over the 2007-2011 period, the total shops pipeline – because of the grocery development upturn – has still grown by over 4 million sq ft.

Chris Keen, Director at CBRE, commented:

“There are not many sectors of the UK property market that are growing rapidly these days, but supermarkets are a notable exception. The withdrawal of speculative developers following the onset of the 2007 credit crisis provided supermarkets with a rare window of opportunity to increase expansion activity levels, an opportunity, most key grocery players grasped with alacrity.

“The main push continues to be for edge and out-of-town space because of its accessibility. Grocers are, however, also acquiring additional High Street stores, particularly in conurbations where it is more difficult to obtain planning permissions for superstore development.”

The growth surge is not affecting every grocery format in the same way. Difficulties have recently emerged at the very large store end with some grocery majors reporting disappointing non-food sales growth. Given the investment ploughed into non-food merchandising in recent years by grocers, the announcement that some major hypermarket development programmes were being axed was unexpected, particularly given that grocers’ share of non-food sales have almost doubled over the last decade to 14%: a startling rate of non-food trade diversion, dwarfing even that achieved by the internet over the same period.

In practice, nothing has yet filtered through to pipeline figures. Bearing in mind the very major planning obstructions in the way of securing 100,000 square foot plus hypermarket permissions (and the very small number of such schemes that have ever been in the pipeline anyway), paring back schemes at this level is not going to have a significant impact on grocery expansion activity.

Chris Keen commented:

“With speculative development at a recessionary low, grocery development is often the only game in town and could remain so for a lengthy period. We do not expect the supply of new supermarkets to dry up while non-food and service operators retreat from the High Street and smaller markets. The internet, home delivery, and ‘click & collect’ are unlikely to fill the hole and the obvious way of tapping local, everyday non-food items and services is via supermarkets. The scramble for grocery space consequently looks set to continue.”

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