The occupational market is currently in far more robust health than much of the recent comment on this sector might lead you to believe. Indeed, while the received wisdom is that the Open A1 segment is the strongest part of the market, we are currently seeing more tenant demand from bulky goods retailers than from the high street retailers.

There is undoubtedly still tenant demand focused on the best shopping parks, with Next, Primark, Debenhams, and M&S all targeting 15,000 sq ft plus stores, and TK Maxx, M&S Simply Food, Outfit, Wilko and H&M all active in the 10-15,000 sq ft segment. However, the number of new entrants to the shopping park segment for the traditional 10,000sq ft store has dwindled, particularly in comparison to the demand for bulky goods parks. The key size requirement sought on shopping parks is 2,000-5,000 sq ft to cater for the new entrants that include Schuh and Fat Face, as well as other occupiers such as Superdrug that are expanding onto these schemes.

Indeed, it has been a long time since we have seen such strong retailer demand for bulky goods schemes, with more than 20 retailers actively seeking new units across the full range of unit sizes from 3,000-20,000 sq ft. The most exciting aspect of this demand is the number of new entrants to either market, including such names as Mattressman (who we profile in the next section of this report), Smyths Toys, Tapi Carpets, Cycle Republic, Evans Cycles, Sofaworks, Betta Living and Furniture Barn. These requirements are combining with those of the more established players in this segment, such as Wickes, Dunelm, Furniture Village and SCS to create an environment where real rental growth is becoming more than just an aspiration.

Certainly the supply-side story is improving, at least from a landlord's perspective. The latest trends reported by Trevor Wood in The Definitive Guide to Retail & Leisure Parks 2015 show that the overall vacancy rate has fallen from its peak of 11.8% to 7.1% at the end of 2014. The vacancy rate on Open A1 consented schemes is now as low as 6.1%, its lowest level since 2005. In comparison these rates have more in common with the City of London office market.

Interestingly, these low void rates are not just a story in London and the South East. A lack of development and recovering demand has led to some parts of the UK, including East Anglia and the North, now showing overall retail warehouse vacancy rates of less than 5.5%. With a very limited development pipeline ahead, these locations could be amongst the first to see a race for space and a swing from overrented to real movement in headline rents.

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^{Source: Savills Research}

There is still potential for some significant tenant release of retail warehousing space, with both Homebase and B&Q having announced plans to reduce the sizes of their estates by 20-25%. If both these retailers were to manage such a reduction it would see around eight million square feet of space being returned to the landlords. However, this is likely to prove hard to do given both the expiry profiles of these estates, and the limited ability to sub-lease the larger units that B&Q in particular occupy.

We expect that Homebase will be more successful in achieving their rationalisation plans, and that tenant demand for these midsize stores will be stronger, particularly given the current strength of demand for bulky goods units across the UK, and the increasing store size requirements of the value retailers such as B&M and Home Bargains.

Looking ahead, we expect that bulky goods tenants will remain acquisitive, and that they will be the retailers offering the strongest rental terms. Fashion tenants will continue to demand high premiums and short lease terms, as competition from neighbouring high street landlords remains intense. Development activity will pick-up, though it will remain at a very low level in comparison to the norm. There will also be a significant refurbishment programme both by retailers and landlords, as the acceptance of the need to provide a positive shopper experience even on out-of-town schemes becomes more widespread.