Surely shops are now cheap? Well they certainly seem to be relative to other property sectors and all this coupled with the fact that consumer confidence is now as high as it has been since the start of the recession.

Of course there is still some occupational uncertainty. The news of Phones 4U entering administration and releasing 560 shops to the market has hardly helped sentiment, but as we have seen with other insolvencies take up of prime shops by the competition has generally been pretty good. Indeed this insolvency may even give landlords the first chance since the recession began to possibly achieve positive reversions.

Savills prime yields for M25 offices sit at 5%, multi let industrials at 5% and shopping centres at 4.5%. It is still possible to purchase good prime shops in the 5-6% range often off re-based rents.

Opportunity funds have already identified the value in the sector, and we are beginning to now see keen competition for portfolios of shops. These include properties in secondary locations. We are still an advocate of investors focusing on the UK’s top centres and on finding clients rebased rents from which good growth should follow. In prime locations, as demand returns, landlords should also be able to command longer leases.

UK institutions are still selective in what they target, but with news emerging that it is an institution who are under offer to purchase a prime block in Clapham Junction, where the residential value makes up a considerable amount of the income, it does seem clear that appetite remains strong for the right type of stock.

Property companies and private investors are also now able to obtain debt and this should see pricing improve over the quarter. The forthcoming auctions, where catalogue size certainly suggests that the market has returned, will be the real test and we would anticipate improved competition.

With the economic outlook remaining unsettled and with Christmas trade now looming we would expect occupational stability to return, and investment demand to increase.

Taken from
UK Shopping Centre and High Street Bulletin Q3 2014