We predicted in our last bulletin that the remainder of 2015 would see a rush of new stock coming onto the market, particularly in the previously starved prime end of the market. This has undoubtedly been the case in Q3, and we expect to see more prime high street shop sales in Q4.

Investor appetite for prime shops remain strong, and this increased liquidity at the prime end of the market will ensure that prime yields move in a quarter point to 4.0% by the end of the year.

This renewed investor appetite for the sector is being driven by two themes. The first being a simple improvement in investor's perceptions of the high street retail market, and the second being a rising belief that there are good opportunities to reinvest any proceeds from sales.

It was the latter of these two themes that was creating the biggest logjam earlier this year, with many experienced high street retail investors unwilling to sell prime assets as they felt at the time the opportunities at the secondary end of the market were too limited and risky. This has changed over the last few months, with a rising interest in secondary assets.

Despite this renewed interest in secondary, the bulk of investor demand remains for prime shops in lot sizes of £15m and above, with the main buyers for these being the UK institutions. However, we expect that there will be limited numbers of opportunities in this size and quality band over the next 12 months, and those investors who are looking to increase their weightings toward high street retail may have to consider smaller or poorer quality assets to fulfil this aspiration.

Looking ahead to 2016, we expect to see a continuation of the key trends that have been prevalent in the high street investment market this year. This will include a broadening investor base, with demand from both risk-averse and opportunistic buyers.

We also expect to see more activity in the smaller lot size market, where there is on average a 50bps yield spread between the £5 – £15m bracket and the £15 – £50m bracket. Will we see therefore more activity in the smaller lot size market? Some investors will undoubtedly be looking for the next area where reducing risk-aversion will drive a closing of yield spreads, and this will be one of them.

Retail is actually the only one of the three main commercial property segments where there is still a significantly wider than normal yield spread between prime/secondary (nearly 200bps), and prime/tertiary (over 400bps). Given that the long term average spreads for the these two categories are 122bps and 294bps respectively, there is still some potential for the improving confidence around the future for the sector to drive some closing of these spreads.

The all-important question will remain whether the rental growth prospects for the sector are going to improve, and which streets and pitches will deliver growth. Our current forecast for national average retail rental growth is pointing to a recovery in rental growth rates from 1 – 2% pa in 2015-16 to 2 – 3% per annum in 2017-19. However, as is always the case with this segment of the market, stock selection will be the key to out-performance.