UK retail investment set for positive returns
Stewart Colderick, Executive Director, Retail Investment at CBRE commented: “The first half of 2010 will see continued momentum in the retail investment market and whilst we expect rises in values to be moderate, there are opportunities in all retail sub-sectors provided we look beyond headline pricing and fully understand what is at the heart of it all – the retailer and their requirements. “
“The UK economy is limping out of recession and there will no doubt be continued challenges for retailers, but we are witnessing unprecedented levels of investor demand and a market that creates a huge opportunity for the informed investor.”
“With the retail sector leading the recovery in investment markets, CBRE predicts total property returns in the mid-teens for 2010 with retail forecasts predicted to perform somewhat more strongly.”
Key findings from the research show:
Out of Town
• After the exceptional performance in the latter part of 2009, the sector’s returns are anticipated to moderate in the short term as relative pricing has become less attractive. The medium term outlook for retail warehouses is however expected to be relatively strong given the very positive fundamentals of the sector
• Out of town development pipeline is at its lowest level since 1994, and renewed occupier demand is expected to result in rents rising from their current levels, with growth at a faster pace than shopping centre or high streets
• In terms of investment, debt-backed buyers remain a rarity and in the medium term the market is expected to continue to be driven by institutions that have shown a strong appetite for the sector.
• Central London retail investment will continue to be dominated by a demand and supply imbalance which will be compounded by the relative and ongoing weakness of sterling
• the pool and diversity of investors will remain broad – UK institutions, private investors and overseas buyers. This breadth of demand underlines the significance of London retail as an investment subclass in its own right
• recovery in occupational market will be accelerated by the demand from retailers for the best quality space.
• yield compression is set to continue as the imbalance between supply and demand remains the dominant feature of the market
• anticipate a greater hardening of secondary yields in the short to medium term as institutional investors see greater value given relative pricing differential with prime assets.
• Shopping Centre development pipeline is at its lowest level for over 15 years with no major schemes, with the exception of Westfield Stratford and One New Change due to come onto the market before 2013
• increased levels of institutional money in the sector, particularly for smaller schemes are expected to help maintain the downward trend in yields
• The sector is expected to be subject to a wide divergence in the performance of individual assets with a number of secondary centres likely to be subject to declining rents, increasing rates of tenant default and growing structural vacancies, while dominant centres are expected to further consolidate their relative market position.
In 2009, total transactional activity continued its downward trend but the investment market saw an unexpected rapid return to positive sentiment in the final quarter of 2009 with a total of £3.2 billion retail transactions recorded in Q4 2009 compared to £1.5 billion for Q4 2008. Key deals in the second half of 2009 included Meadowhall, the Bullring and Silverburn.
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