Key points:
- Hammerson does need to reorder its portfolio
- There’s an offer for a part of that portfolio
- This is interesting, but it is only an offer
- Is Hammerson Just Option Value On British Commercial Property?
Hammerson PLC (LON: HMSO) shares have moved up a percent or so on the news that there’s an offer for a part of the property portfolio. This is interesting but it’s still nothing like an actual resolution of the basic Hammerson problem. It’s also only an offer so it remains to be seen whether this deal will even go through.
The Hammerson announcement is here. Folk related to Redical Holdings are interested in offering perhaps £120 million for the Victoria (Gate and Quarter) shopping centres in Leeds. Which is nice, but it’s not an actual solution.
As we’ve noted before Hammerson faces a distinct problem. Hammerson shares might represent option value on the commercial property sector that is. The basic problem is that the world has changed away from the business model that was being used.
Also Read: Hammerson Stock Forecast
Clearly, internet shopping is growing. Before lockdown, it seemed to increase at one percentage point or so of retail sales each year. Lockdown made that boom, for obvious reasons, and the online share jumped at one point from perhaps 14% of total sales to 28%. It’s falling back, as it also obviously would do. But the big question is how far back?
The problem for companies like Hammerson is that as online took that percentage point share each year then so did empty commercial premises rise by a percentage point each year. Which, if you’re a landlord owning commercial property is a problem. The entire sector is becoming worth less as the oversupply driven by technological change becomes more apparent.
What no one knows – no one knows because this has never happened before – is how far the process is going to go? If retail property is definitely overbuilt then yes, values will decline. But how much? Further, will there still be some core of “destination shopping” where the big day out happens? Perhaps the internet will only eat routine purchases? Or maybe Boohoo and THG will eat their parts of the market and so that next generation of adults just never will pick up the habit of physical shopping?
The big question for Hammerson is thus whether it’s facing a cyclical difficulty, a lockdown one, and people will return to shopping centres en masse. Or is this some terminal – if long drawn out – event in which the retail estate simply continues to decline in value?
A likely path for the Hammerson share price is a certain volatility as this question is chewed through by market opinion. That’s where that option value on the larger question is. News like that today, that there’s an offer for a part of the estate, or might be, is interesting. But all it does show is that there are buyers at these depressed prices. It doesn’t solve the base and underlying question at all – are prices going to get more depressed?