The worst economic recession since the 1930s will see retail rents fall by almost a quarter, according to the latest findings by Colliers CRE.

The fall in the region by up to 23.2 per cent will be in line with the national average by the end of 2010 claims the company’s 2009 Midsummer Retail Report.

The report also found that some investors had seen all their equity wiped out with capital values for some properties falling by a half.

At its peak at the end of 2006, the entire retail sector was worth around £93 billion (IPD).

This fell to £60 billion by the end of 2008 and Colliers CRE forecasts it will fall to £48 billion by the end of 2009.

However, the free fall in capital values is now over, and the market has fractured into a veneer of bond quality properties let to good tenant covenants and on reasonable unexpired lease terms where investor demand is strong.

The remainder of the market remains susceptible to tenants of a mixed covenant status where capital values will probably fall further.

Central London, the large, dominant in and out-of-town regional centres and the much smaller market towns are faring the best, as they did in the 1990s.

Discount retailers and those with very strong brands are also trading much better than those in the middle ground who cannot appeal on price or quality to an ever more discerning market.

Landlords appear to have learnt the lesson of the early 1990s, in part forced upon them by the Government’s implementation of full vacant rate payments and now seem prepared to keep units occupied almost on any terms.

Rent free periods and/or incentives equal to two or three years are commonplace with extreme examples of five or even six years rent free being accepted.

Short-term leases on a turnover basis are often being entered into but at least the occupancy of a unit helps maintain vibrancy and a feeling of well being in shopping centres and high streets.

David Smeeton, head of Colliers CRE in Birmingham, said: “If 2007 and 2008 were the years of yield weakness, 2009 and 2010 will be the years of rental value falls.

“While not out of the woods yet, market sentiment has improved to a degree in recent weeks as yields for the best quality investments harden and retailers fortunes slowly but surely start to improve.

“The flood of retail failures prior to and shortly after Christmas 2008 has been stemmed and although few would suggest there will not be further casualties, occupier demand is surprisingly buoyant,” Mr Smeeton added.

“The issue is the terms upon which retailers are prepared to let a unit.”

Colliers CRE forecasts that economic recovery will occur in 2010 although its strength will be modest and there will still be some quarters when growth will come to a standstill.

Unemployment and personal taxation will rise, squeezing consumer expenditure, but a positive total return for the retail market of 8.4 per cent is forecast in 2010.