Where will the retail squeeze be felt the most?

Life has been tough for retailers - and it could be about to get much worse. However, it will be another sector which really feels the squeeze.

Life hasn't been particularly easy for high street retailers in recent years, amid rising costs, falling prices and rampant competition. But the bad news for shopkeepers is that it looks like things are set to get a lot worse. Research firm Verdict this week predicted an increase in the number of high-street retailers going bust. Underlying sales (that is, sales excluding new stores), says Verdict, will scarcely increase at all over the coming five years, while costs will keep rising at around 3% to 4% a year, driven higher by rent increases and expanding minimum wage bills.

Certainly, town centre shops are under pressure. Suburban retail parks are drawing away business, while online shopping although representing a small percentage of overall consumer spending is showing huge growth. Verdict calculates, with an apparent precision that is hard to credit, that last year town-centre shops took £767million less than they did in 2004. That fall, equivalent to 0.6%, is reckoned to be the first annual decline in living memory.

What it means for commercial property developers

You can, of course, quibble about the exact sales figures. But what is really intriguing about Verdict's gloomy prognosis for the high street is not the outlook for the retailers themselves, but what it all means for those who build and own the space from which those retailers operate.

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The amount of high-street retail space actually fell in the first half of this decade by just under 1%. But Verdict reckons that between 2005 and 2010, developers are planning to add around 30 million square feet of new shopping space in city centres an increase of around 6%. That's the equivalent of 15 shopping malls the size of Kent's Bluewater (which is Europe's biggest shopping centre, for those who are blissfully unaware of its existence).

This is where the squeeze will really be felt. If retailers can't generate the business to justify the rents on new outlets, they will hold back when being offered new leases, and rents will fall. Or developers will simply find themselves without the tenants they need, as more chains go out of business or are forced to shut branches about a dozen retail chains fell into administration in the past year alone.

If Verdict is right, and the levels of spending on town centre high streets fail to match increases in costs which may well be the case, given the already huge levels of debt being carried by UK consumers then retailers certainly have something to worry about. But their worries are nothing compared with those facing property companies.

How the OFT was wrong about the LME

The London Metal Exchange is one of the City's success stories. It accounts for more than 90% of metals trading in the world. Contracts worth around $20bn change hands every day. So one might forgive the LME a moment of triumphalism. Last weekend came news that it had won an emphatic victory in its long-running tussle with the Office of Fair Trading over allegations that the exchange was acting in a way that threatened to stifle competition. The OFT was, in effect, told by the Competition Appeals Tribunal that it had been heavy-handed in its dealings with the exchange.

The LME was awarded costs for fighting off an Interim Measures Direction' which the OFT had used to stop it from extending its opening hours into the wee small hours of London's morning, after complaints from a smaller rival. What's more, the Tribunal ruled, the OFT's investigations were "superficial, flawed and ill-founded".

This was the first time that the OFT had used this measure, and it seems it did so in a cack-handed fashion. Yes, there will be occasions where the OFT finds evidence of anti-competitive behaviour so egregious that it has to act firmly and quickly. The IMD is a necessary weapon in the OFT's armoury. But it is one to be used only sparingly and carefully.

That said, in welcoming the findings, the LME came perilously close to declaring that what it does is none of the OFT's business: the exchange is regulated by the Financial Services Authority, and that should be enough. They are wrong.

It is absolutely right particularly given the exchange's hugely dominant position that its activities should be monitored and controlled. There should always be a tension, a mutual wariness bordering on hostility, in the relationship between regulator and regulated. If there weren't we should be worried.

In dealing with the LME, the OFT made a mistake. But that does not diminish the importance of vigorous enforcement of competition policy.

The importance of the OFT's role makes it crucial that it strives to avoid such mistakes in future.

Ben Laurance is the former editor of Financial Mail on Sunday and The Observer Business section. Simon Nixon is away

Annunziata Rees-Mogg

Annunziata was a deputy editor at MoneyWeek, covering financial markets, politics, economics and comment pieces. She then went on to the Daily Telegraph as a lead writer where Annunziata wrote a column on young women’s financial issues. Since then, she has been a member of the European Parliament for the East Midlands region in the UK as part of the Conservative Party and Annunziata continues to write for titles as a freelance journalist.