Despite ‘stubbornly high vacancy rates’ and tentative demand for shops, investment into UK retail property is accelerating with more than £5bn of acquisitions by overseas investors forecast to take place by the end of the year.
According to Colliers International’s Midsummer Retail Report
, in 2014 there was £4.6bn of overseas investment into UK retail property. While this was only slightly ahead of 2013, the trend this year appears to be quickening. With less than half the year gone, £2.8bn has already been spent by foreign investors on UK retail assets.
Competition for the best shopping properties is being further fuelled by cheap debt finance which is enabling investors to leverage their buying power.
Colliers’ Head of UK Retail Investment, James Watson, comments: “Debt is most certainly back in the market. And if the return of cheap debt is a sure sign of a bull market then that is very definitely what we’ve got.
“Senior debt is now commonly available with loan-to-value ratios of more than 70% - and when you combine that with the extreme cheapness of borrowing, it’s clear how that is influencing buying in the market.”
Against this backdrop, the value of retail property is moving up and yields are going down.
The All-Retail IPD equivalent yield hardened in Q1 of this year and this downward trend is expected to continue. Colliers is forecasting an inward movement of 26 bps for the All-Retail yield by the end of the year.
James Watson comments: “The sharpest compression is likely to be in shopping centres - around 40 basis points - followed by standard shops (32 bps) and retail warehouses (26 bps).”
And despite the well-documented problems of British High Streets, that sector of the retail property market attracted £2.39bn of investment last year – a 30% jump on the 2013 level.
However, in contrast to the forward momentum in the investment market, the levels of shop vacancy, rents and retailer demand remain muted.
Colliers analysis of 421 shopping pitches across the UK shows that – with the exception of London – there is very modest rental growth in selected locations.
Central London continues to contribute most to rental growth with rents expected to grow by 7.7% this year, and by an average of 4.8% pa in the period 2015-2019
Overall, UK retail rents are expected to rise by 1.4% this year - a slight acceleration on the 2014 level.
The report also analyses the level of vacant units in 15 key locations across the UK to create a ‘vacancy barometer’ for the country’s retail market.
It notes that the level of vacant units remains ‘stubbornly high’ at 14.7% (up from 13.6% in October 2014).
Colliers’ Head of UK Retail, Mark Phillipson: “An over-provision of shopping and obsolescent units in towns and cities across the UK is creating ‘sticky’ space – shops that have little prospect of letting.
With more conservative expansion plans, retailers will only take the right space in the right place. This is underlined by the fact that we are now seeing new shopping development which will find occupiers while huge swathes of existing stock remain empty”.
For further information, visit midsummerretailreport.co.uk