The retail occupational market continues to recover, with rising demand, new entrants, and increasing competition for the best spots on good pitches in prime and value-orientated towns.

The summer Budget had a mixed message for retailers, with no firm guidance on business rates, the introduction of a new national living wage, and the opening of the door for local authorities to relax Sunday trading regulations in their area. As is always the case in budgets, the out turn usually tends to be giving with one hand and taking away with the other!

While some retailers will benefit from Sunday trading, others may well see it as a negative either in terms of increased competition, or a diversion of sales away from more profitable c-stores to larger foodstores. The living wage will undoubtedly present a challenge for many retailers, and bizarrely enough might well discourage some retailers from taking advantage of the relaxation in Sunday trading regulations.

Away from these macro issues, retailers generally are seeming to be more positive about the future, with some segments of the market becoming very competitive. Chief amongst these is the discount sector, both in terms of food and clothing. New and existing players such as Pep & Co, Aldi and Lidl all have requirements for significant numbers of new stores, often in locations that have been passed over by the mainstream retailers in recent years. This is putting pressure on the increasingly limited supply of larger format stores, and we do not expect to see this being relieved by development activity in the foreseeable future.

The discounters are also putting pressure on their mid-market competitors, with the food players in particular starting to aggressively target the type of sales that historically have been the preserve of the more mainstream players. This is also true in the clothing sector, and we expect to see this space becoming increasingly competitive over the next few years.

We remain sanguine about the prospects for food retailing in the UK. Once the ideal split between superstore and convenience has been worked out, this sector should continue to perform well.

This structural change in food retailing has many similarities with the online challenges that the rest of the retail sector has been struggling with in recent years. As we have alluded to in previous issues of this report, we have always felt that the shock of the internet has been overplayed. Pure play retailers continue to adapt well to an omni-channel world, and we expect to see more internet-only retailers expanding their offer to include high street or out-of-town stores.

The internet retail story of the last quarter has undoubtedly been John Lewis' plan to charge for smaller click and collect transactions. Click and collect will undoubtedly be the new battleground for retailers, with some continuing to offer it for free on the basis that it is what the customer wants, and is cheaper for the retailer than subsidising home delivery. However, we are hearing from a number of retailers that 30-40% of the storage areas of their stores is often being occupied by click and collect orders, and this will continue to support the demand for larger stores going forward.

Locational requirements have continued to broaden over the last quarter, with retailer demand becoming less focused on London and the South East than it was 12 months ago. We estimate that headline rents for new leases in London and the South East are now generally above the levels that were being achieved at the height of the last boom. Away from the south the last quarter has also seen upward pressure on rents in the major cities and good market towns, albeit only from the rebased post-crisis rents that were being achieved in 2010-12.

The major real-estate challenge for expansionist retailers over the next 12 months will be the lack of new space coming to the market. The development pipeline remains highly restrained, and while we do expect to see a rise in infilling of existing schemes, there will be a real shortage of large new retail units in prime locations over the next five years. This will also be a challenge for the discounters, with the majority of the large units in good secondary catchments now having been soaked up.

This will mean that once retailers emerge from the crucial Christmas trading period (which we expect to be stronger this year than last), they will have to expect to pay higher rents for the dwindling supply of large shops in 2016 than they were paying in 2015.