As values fall, will the optimists or pessimists prevail?

UK real estate values may have fallen by an average of 20% since last June, but you could still put up very convincing arguments to continue avoiding the major sectors.

Forget offices – working from home is here to stay and asset depreciation is increasing. Logistics are still too expensive and rental growth will slow. Meanwhile, shopping centres will be impacted by the impending recession.

The investment market for shopping centres is already very thin, which is not a surprise. Thousands of shops closed last year, some retailers went bust and consumer spending fell – retail sales were unexpectedly down 1% in December – in response to higher prices, surging bills and a weak economic backdrop.

But, as Winston Churchill, once said: “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” Today’s shopping centre optimist is Mike Ashley, who is rather interestingly adopting a similar strategy to that of another famous retail entrepreneur, Sir Ralph Halpern.

Halpern was the founder of Topshop and CEO of the Burton Group from 1979 to 1991. He turned Burton into a retail empire that dominated the British high street, with 2,800 stores and brands including Topshop, Dorothy Perkins, Debenhams, Principles, Racing Green and Evans. As a way of making even more money he came up with the idea of setting up a property company to develop shopping centres, which would be anchored by Burton brands. Thus, Burton Property Trust, which listed on the LSE, was born.

Rather than go down the risky development route – and, let’s face it, no-one is developing shopping centres at the moment – Ashley is taking advantage of the weak shopping centre market to buy decent existing centres with vacant space.

His latest deal is in Dundee. Ashley’s Frasers Group is closing in on the £30m acquisition of the Overgate Centre (pictured), which would be Frasers’ first pure shopping centre purchase in the UK. The vendor, Legal & General Investment Management, bought the centre from Land Securities in 2014 for £125m.

Overgate has 70 retail units, totalling 420,000 sq ft. It was anchored by a huge Debenhams, which is now vacant, and therein lies the opportunity. Frasers is expected to fill the flagship unit with one of its brands, which include House of Fraser, Flannels, Sports Direct, Jack Wills, GAME, USC, Lillywhites and Evans Cycles.

Flannels is a good bet. Under the direction of new CEO Michael Murray, Frasers has been aggressively expanding this brand, which is its luxury footprint. It enables Frasers to sell products from Nike, Adidas and Puma in a luxury setting rather than just from Sports Direct (which they prefer).

Flannels stores – all more than 80,000 sq ft in size – are opening soon in Leeds, Cardiff and Gateshead’s Metrocentre.

Ashley’s property strategy is a bold but savvy one. If he fills the empty Debenhams store at the Overgate with, say, Flannels, the value of the centre will immediately rise significantly. Added to that, there are still some successful retailers who want a physical presence in good centres and it is now affordable for them, especially with major savings on rate payments due this year reflecting the collapse in rental values.