Chief Executive's Statement
2018 marked my first full year in the business and proved to be a challenging one for the global equities markets, the UK, and physical retailing, where we continue to see an unprecedented rate of change driven by both cyclical pressures and the ongoing evolution of retailing. Evolution in retailing isn’t a new phenomenon. In the 27 years that I have been in this industry, it has never stood still. The growth, then decline, of the department store, the advent of out-of-town superstores or “category killers” and their impact on many high streets and town centres, the rise of speciality store retailing and now online shopping are just some of the changes that have impacted the industry during that time. Change is a constant and success is defined by those companies best able to decipher and/or predict then respond and adapt to these changes. Being able to separate hype from reality and focusing on what can be controlled is a key part of this process.
One of the many things that attracted me to C&R, and back to the UK, is the belief that C&R is well positioned to capitalise on the changes taking place in our industry. These changes are not confined just to retailing and retail-led destinations. The UK is a world leader in the adoption of digital media and technology take-up, including online shopping. The vast majority of retailers who we meet reaffirm our view of the importance of store-based retailing, that the intersection of where product meets people is as important as it ever has been, and our communities speak of the role community retail has in positively changing people’s lives, from the every day to their aspirations for the future.
Ownership of UK community retail is fragmented and we continue to believe that there are opportunities and benefits in the aggregation and consolidation of the ownership and management of these venues. We start from a strong position as our community shopping centres are located in some of the highest growth areas in the UK, with over 50 per cent of our gross asset value in greater London and with a focus on non-discretionary, needs-based retail and services where the nature of the goods or economics impede online penetration. The quality of our underlying real estate creates a platform for greater density through mixed-use developments, transforming these locations into exciting and compelling places where people live, work and stay.
In a dynamic retailing environment our scale has advantages as it enables us to be agile and respond more quickly to the changes we see taking place around us. We are committed to our internal management platform and in investing in retaining, growing and recruiting specialist skills in all aspects of repositioning and operating our properties, which we believe drives future returns. We believe that, as the cyclical pressures abate coupled with an understanding of the continued critical role that physical stores have in the sale and distribution of goods and services, our assets and management expertise will afford C&R an exciting opportunity as a potential consolidator of UK community and mixed-use retail assets in the UK.
Notwithstanding the opportunities that will arise from further changes in retailing, our immediate focus is on improving the relevance, performance and value of our existing assets and this is where our comprehensive masterplan approach to asset repositioning is delivering results. Our focus needs to be on the continued delivery of these repositioning and remerchandising masterplans through ongoing investment in our capex programme, to ensure that our assets meet the expectations and needs of our communities.
The intersection of where product meets people remains of critical importance, and our centres have a vital role to play as distribution platforms for goods and services.
Our 2018 results illustrate the quality of our underlying real estate and the skill and expertise of our dedicated team who are driven by our objective to create vibrant trading and meeting places. Their success is evidenced by the industry-leading growth in our footfall performance which supports continued leasing momentum. We have also made positive progress in redefining our culture and delivering operational efficiencies. A key part of this has been our move to a decentralised structure designed to provide greater levels of input and empowerment to our onsite teams who are best placed to direct how we tailor our customer proposition for the local communities that we serve.
The roll-out of our capex programme continued during 2018 with £18.5 million invested across our portfolio, including our flagship family precinct in Ilford, which has delivered impressive footfall and leasing results. We have identified over 30 potential projects representing around £80 million through our asset masterplans. These are in addition to the residential, hotel and other development opportunities that exist above or adjacent to our centres, which we continue to progress in dialogue with local councils and potential specialist development partners.
Our plans are consistent with central government planning policy, which supports the town centre first strategy, and councils’ local area strategic development plans. We recognise the importance of being a good neighbour and our responsibility to work in partnership with the communities in which we operate. It is hugely important to us that our local communities benefit from our presence both economically and socially and we strive to communicate effectively with local stakeholders based on the specific needs of each community.
Our operational performance has remained robust throughout a challenging year in the retail market which has been driven predominantly by the accelerated pace of structural change and exacerbated by Brexit uncertainty. These headwinds present some constraints and the need to be selective on the investment of capex. We are also seeing the ongoing polarisation in retail venues, and the need for retailers to improve profitability and enable greater levels of investment in their customer proposition, both physical and online.
However, despite these headwinds, I remain confident that our strategy will realise the potential of our existing portfolio, which is underpinned by its bias towards high population growth areas in London and proximity to busy transport hubs. We continue to believe that the intersection of where product meets people remains of critical importance to brands and retailers and that our centres have a vital role to play as distribution platforms for goods and services.
Finally, I would like to acknowledge the hard work and dedication of our teams in each of our centres and at our support office in London. Thank you for your hard work, support, feedback and inspiration.