Retail warehousing continues to deliver steady total returns, with the average return for the 12 months to the end of March 2015 according to IPD of 13.8%. This is broadly in line with the return from shopping centres, and ahead of the returns from high street shops outside London.

The most interesting factor about the returns from this sector is the comparatively higher capital growth that is still being delivered (7.3% over the last 12 months compared to 6.7% for all retail). This points to potential for higher returns going forward as rental growth starts to recover.

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^{Source: Savills Research}

Average annual rental growth for all retail warehousing has now been marginally positive since August 2014, but is still only showing 0.47%pa according to IPD. Given that rental growth in London has been nearly 2% over the last 12 months, and across the South East 0.7%, we expect to see this recovery spread out across the rest of the UK's key retail parks over the next 12-18 months.

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^{Source: Investment Property Databank}

Interestingly the rate of the rental growth being delivered by the retail warehouse sector is substantially ahead of that of the shopping centre market. This is perhaps a reflection of the strength of tenant demand that is present in the bulky goods retail warehouse market, a theme that we examine more closely in the occupational section of this report.

Investor demand for retail warehousing remains heavily polarised between locations that are perceived as strong, and the rest. The weight of demand for prime parks in prime locations far exceeds supply, however searching questions are still being asked about investments that don't score an A on location and tenant demand.

The most active purchasers at present are the UK institutions, though we are seeing increasing interest in retail warehousing from non-domestic investors, particularly the opportunistic US funds who are targeting yields of 6-6.5%. In terms of lot size the current sweet spot appears to be £20-£50m, where the supply of good quality assets has been very limited over the last year. Typical of this segment of the market is the recent sale of Drakehouse Retail Park where Savills advised Hammerson on the disposal of the park to clients of 90 North for £61.7m, 6.4% NIY.

There is a danger of an impasse in the "off prime" sector, with investors over analysing potential weaknesses and valuers over emphasising the strengths, and linking values to prime.

Looking ahead we expect to see the investor caution about A- and B+ parks diminish, particularly as the positive story on the occupational side begins to feed through into investor's minds. At present we believe that these are the best value assets, offering a degree of capital value growth, as well as the potential to asset manage some rental growth as the consumer recovery gathers pace.

Investor demand will become more broadly focused on the top 80 locations, targeting areas of undersupply and swinging towards the best bulky goods parks and away from overrented shopping parks. The moment is definitely approaching when investors will begin to a see a void on these types of schemes as am opportunity rather than a risk. However, there is still a question over how quickly the true rent will rise above the passing rent in much of the sector.