Early last year we predicted that the prime high street shop yield would fall to 4% by the end of the year, and November 2015 saw this prediction come true.

This quarter point downward shift in the prime yield was enabled by an increase in good quality assets coming to the market in the second half of the year, following the relative drought of such product in the first half of 2015.

Investor demand for prime assets in the South remains very strong, and we expect that the first half of 2016 will see a steady stream of prime assets being brought to the markets as vendors seek to capitalise on the recent rise in the achievable capital values.

However, the recovery in the high street shop market is no longer confined to just London and the South. Investor confidence in the top regional cities has steadily improved over the second half of 2015, driven both by comparative pricing to London and the South, and the increasing acceptance that the rental cycle is now turning in the landlord's favour in these markets. The recent sale of the Lloyds unit on Market Street in Manchester is typical of this trend, there was a significant level of investor demand from both UK institutions and foreign buyers with the final sale price reflecting a NIY of 4.14%.

^{Source: Savills} 

Late 2015 also saw secondary yields begin to follow prime inwards in some locations, both in anticipation of a recovery in the occupational story around secondary pitches and locations, and as a play on the 70bps wider than normal spread between prime and secondary shop yields.

2016 will see a continuation of this trend, with rising confidence in the occupational market delivering steady investor demand for secondary assets, and strong demand for prime. While demand for truly opportunistic opportunities such as voids and development opportunities is currently very limited, we also expect to see a slight uptick in interest in these types of investment in 2016 - so long as the catchment is of a suitable quality to support retailer demand.

We do not expect prime yields to harden any further this year, but a further 25-50bps hardening in secondary yields is beginning to look inevitable.