Real Estate Round-Up: Retail Property

High street retail & shopping centres

The first two sub-sectors, high street retail and shopping centres continue to struggle.  

However, low footfall and subsequent poor performance creates asset management opportunities for those purchasing shopping centres at record low prices. As the UK continues to unlock, there is the potential for long-term profitability.  

High street retail is still on its knees in many areas with councils across the UK trying to find imaginative ways to rejuvenate them.  

Food stores

Conversely, pre-pandemic, food stores performed strongly with investors snapping up these assets; whether they were standalone units or trading as part of a petrol station. 

This was due primarily to the strength of the tenant e.g., M&S, Waitrose, Sainsbury’s, Aldi, Lidl, etc... and the long, relatively certain, income stream provided from the lease, usually with greater than five years of unexpired term. 

When the UK went into lockdown, only essential retailers such as supermarkets remained open and traded exceptionally well, which in turn generated even greater demand from investors for these star-performing assets.

Retail parks

Many of these supermarkets are located on secondary retail parks with other retail warehouse store traders. Lockdown saw consumers attending to DIY tasks and home improvements, so DIY stores (e.g., Homebase, B&Q, Wickes) which were also considered to be essential, remained open and traded well.  

Whilst not considered essential, furniture and homeware retailers such as Dunelm and DFS have also exceeded performance expectations during the past 18 months as consumers ploughed their increased disposable income savings into their homes.  

Consequently, out-of-town retail parks have attracted consumers throughout the past year, with a sense of safety from the ability to drive in their own cars, have hassle-free parking, along with the ability to maintain social distancing in these larger retail units.   

Other ‘winning’ retailers operating in these parks have been discount retailers such as Poundland, Home Bargains, The Range, and B&M, where consumers consciously spent more carefully with potential job loss or furloughing on the horizon.  

Pet product traders have also been winners. For example, Pets at Home, where trading improved because the demand for pets increased significantly during lockdown.

Online shopping & ‘click-and-collect’

In addition, the general shift in consumer shopping habits, namely increased online shopping, has significantly increased e-commerce. Retailers with large units on retail parks are benefiting from the ability to store large volumes of stock for ‘last mile’ delivery logistics and click-and-collect options.

Investors & the property market

The ability to weather the storm and attract increased footfall during times of crisis has not gone unnoticed by investors. Last year ended with a flurry of retail park transactions which then continued into 2021. In February, I asked a couple of friendly surveyors for recent comparable transaction data for this sector, I was expecting perhaps a handful of comparables. Instead, I was presented with almost 100 pages. Such is the strength of the market.  

To further illustrate this, yields have moved in for these two sectors over the past year and the market sentiment continues to be positive. 

Retail property market outlook 

The factors above, with the long-term potential to asset manage and improve these prime – and in many cases secondary – retail parks have added to the attraction for investors.  

Talking to surveyors active in this market, the current view is that investor demand continues and is likely to persist for the foreseeable future for food stores – supermarket chains or local convenience shops –  and for out-of-town retail parks, especially those with asset management opportunities.