Yields on retail warehouses and prime leisure are converging – Knight Frank
Yields on retail warehouse property have been softening in a reflection of concerns about certain covenants and potential over-renting, says Knight Frank, but there is strong investment interest in good-quality leisure property, to the point where yields for the best leisure schemes have converged with those for some types of out-of-town retail warehousing.
Knight Frank says it is not just the concerns about these kinds of retail warehouse properties that have prompted this trend – it also reflects the increasing recognition among investors that many leisure-sector operators have improved their financial situation, and many are still taking long leases, often with fixed or index-linked rent increases at review. “As a bonus, many existing schemes are not let on rents which look below a market level, particularly in the casual dining sector,” the firm notes.
Andrew McGregor, head of leisure at Knight Frank, says the traditional risk premim between prime leisure and solus bulky units and bulky retail parks has been around 50bp-100bp, but with yields on prime leisure parks now around 6.25%, “this sector is now keener than out-of-town solus bulky goods/DIY retail and on a par with the best bulky goods parks”.
Knight Frank also notes that while the UK economy remains fragile overall, the leisure occupier market has remained relatively robust; some leisure operators have recently reported strong trading results and are expanding into new locations.
