UK Shopping Mall Lending Becomes a No-Go Area

LONDON, United Kingdom — It's been a tough year for British retail and now an experienced lender says it won't advance credit for malls there.

Shopping centers are a “no-go area” for loans, Andreas Arndt, chief executive at Deutsche Pfandbriefbank AG, said on an earnings call on Monday. “You can have very nice yields on retail shopping center development in the UK just now, which is simply the reflection that nobody wants to go there presently.”

About 16 percent of PBB’s 28.6 billion euro ($33.8 billion) portfolio is in the UK. In the first quarter, just 8 percent of new real estate lending was in Britain, reflecting the bank’s ongoing caution around Brexit. The firm is more selective about lending to retail real estate, with e-commerce being one of the major drivers of change, a spokesman said by email.

A string of retailers have cut their rent bills, closed stores and gone bankrupt this year as a weak pound, higher labour costs and competition from online rivals including Amazon.com Inc. hurt earnings. That’s causing mall prices to fall and prompting landlords to seek scale through mergers and acquisitions to concentrate on the biggest and best malls.

Land Securities Group Plc, Britain’s largest publicly traded landlord, said on Tuesday that the value of its shopping centre and store portfolio fell by 3 percent in the year through March. The value of the Bluewater shopping center in Kent, which the firm part owns, fell 11 percent.

Arndt described the wider UK commercial property market as “an enigma.”

“On one hand, you have all these uncertainties around Brexit. On the other, we talk about stable markets,” Arndt said. The UK is still seen as a safe place to invest, demand from overseas buyers in stable and the outlook for the wider market is good, he said.

“Are we missing out on something? Presently we go by the rule that better safe than sorry.”

By: Jack Sidders; Editor: Neil Callanan.