Shop landlord Hammerson wary on spending cuts

By This Is Money
Updated: 06:21 EDT, 21 February 2011

Shopping centre owner Hammerson has sounded a warning about the possible fallout of the VAT hike and government cutbacks for retailers.

Portfolio: Hammerson owns properties in the City of London

The owner of the malls including the Bullring and Brent Cross is concerned that austerity measures could lead to its shop tenants having problems keeping up with rent.

Despite its caution about the future outlook, Hammerson unveiled an 11% rise in underlying profit to £144.5m in 2010.

Like for like net rental income was up 3.5% to £284.7m.

And retail vacancies fell as the recession saw many new developments cancelled or put on hold, which helped overall occupancy levels rise to 97.3%.

Hammerson's shares rose 7.3p to 454.8p in trading today.

The group, which also owns Reading's Oracle and Cabot Circus in Bristol, said 2010 saw a turnaround for many retailers as trading conditions improved and administrations declined.

'The trading environment has continued to improve during 2010, and the rate at which retail companies in the UK are going into administration has fallen,' it said.

'However the effects of increased taxation and restrictions on government spending may mean that some tenants, principally in the UK retail sector, face difficult operating conditions and there is a risk that they will be unable to pay their rents.'

Hammerson expects the retailing trend favouring prime, regionally dominant shopping centres and conveniently located retail parks to continue.

The company, which also operates in the office market, said demand from businesses in central London bounced back to a three-year high in the final quarter of 2010 following a drop-off amid eurozone debt fears.

Business confidence improved at the year-end as equity markets reached levels not seen since mid-2008. Hammerson said central London take-up as a whole last year rose 67% with leasing activity at its highest since 2006.

The company hiked its total annual dividend by 3.2% to 15.95p.

Meanwhile, it signalled interest in future property purchases, saying: 'Looking forward, our financial flexibility and continued asset recycling will allow us to continue to take advantage of opportunities which we believe will arise in the coming period.'

Nevertheless, the group's comments about a tougher 2011 are likely to reinforce worries about the impact of government spending cuts on the retail sector.

Embattled chain JJB Sports has flagged up difficult conditions as it looks to secure a second rescue deal in as many years, asking landlords and investors for support to prevent it collapsing into administration.

And retail bellwether John Lewis raised concerns over consumer spending last week as it reported lacklustre sales for the fourth week in a row.