Pressure on retail yields starts to emerge – Savills
Savills says, in recent research into the UK shopping centre and high street retail sector, that there is now evidence of the previously forecast widening yield gap between primary and secondary assets in this market. Savills expects that “both the prime and town-centre-dominant sectors will come under downward pressure as investors seek higher-quality dominant assets. The secondary end of the market will remain very town-centre-specific, with initial yields ranging from 8% to 10%.”
The firm notes that there are currently 12 shopping centres under offer and 16 in the market – and it is aware of a further 10 being prepared for sale. The year started slowly with a total of 14 transactions in the first quarter, representing a capital value of £2bn. While the market is clearly gaining momentum, questions still remain as to the availability of stock, Savills says. It expects the wave of disposals to gather pace during the rest of this year.
On the high street, Savills says most investment funds still want to buy, but there is little institutional pressure to sell, which means that the type of property funds are seeking – blocks in prime locations, with clean over-riding leases – are not in plentiful supply. This has led to a further hardening in prime yields.
With regard to the occupational market, Savills advises caution. It says: “The Government’s austerity measures have undoubtedly had an impact on retailer performance. This has curtailed many retailers’ expansion plans and left the weaker-run businesses with the need to shed units as quickly as possible to try and prevent administration/receivership. This supply/demand imbalance will continue to materially upset the growth in most of the UK’s town centres and with CVA legislation still having savage repercussions on landlords, meticulous consideration needs to be made on covenant quality before any acquisitions are made.”
The market for retail space in Central London, however, is in a class of its own – here, Savills says, the occupational market continues to see buoyant demand, which should ensure continued rental growth in most core retail locations – and this has in turn boosted investor demand for retail property in the capital’s central retailing areas.
