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Struggling retail looks to supermarkets

Sainsbury’s is still expanding after raising cash via a share placing

Retail construction appears to be entering a prolonged downturn. In the current economic climate, the credit crunch has bitten hard into consumer spending. Consumer confidence has also remained at subdued levels for several months now, and this has impacted upon retail spending.

Glenigan recorded a 23 per cent fall in the value of underlying retail starts last year.

Construction in this sector looks weak in 2009. Developers are now being forced to respond to the tougher market conditions and fewer new projects are coming forward. The value of underlying retail planning approvals fell by 21 per cent in 2008.

Retail construction has been depressed by several factors. Notably, the difficult and deteriorating trading conditions and a slump in consumer confidence and household spending.

Recent months have also seen a number of major retail chains enter administration, while many others have reported a fall in sales.

Analysis by Glenigan shows that the decline in retail sales has been led by falls in non-food sales. In contrast food sales have remained steady, although this is in part due to higher food prices. Most of the major supermarket chains have reported firm turnover growth and increased profits over the last year.

J Sainsbury has raised £445 million via a share placing and convertible bond issue to fund an acceleration of its expansion programme. The company plans to increase its gross floorspace by at least 15 per cent, equating to 2.5 million sq ft of additional selling area, by March 2011.

Project starts have weakened further since the start of the current year and starts during the three months to May were 44 per cent down on a year ago.

Retail construction looks set to continue its boom and bust cycle over the next 18 months and Glenigan has identified some £1.8 billion worth of work that has been placed on hold over the last year.

The forecast is mixed. On one hand the value of underlying retail construction starts are set to fall by 29 per cent in 2009. However, looking forward, prospects for retail construction from 2010 appear promising and the flow of construction schemes is expected to rebound strongly in 2010, albeit from a relatively low base.

Client Focus: Retail

Major Project: £400m construction of a 50,401 seater new football stadium in Liverpool, along with a Tesco supermarket, shops and a hotel. This will include associated car parking facilities, infrastructure, access road, sewer systems, enabling works and landscaping. This is a 26 month scheme and work is expected to start in January 2010.

Past Activity: Client is currently involved in 520 construction projects. From 2007 to 2009 year to date Tesco Plc has been awarded119 projects with a combined value of £479m.

Latest News: Despite announcing a 17% rise in profits year on year Tesco have admitted that some of their more extreme developments will be put on hold in light of the credit crunch.

Contractors they have awarded work to: Barr Construction, Bowmer & Kirkland,

Contact: Head Office, 01992 632222, customer.service@tesco.co.uk

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