■ This means that real earnings growth has gone negative for the first time since the global financial crisis.

■ However, the inflationary effects of the fall in sterling are expected to have washed through the economy by late summer, so the impact of the fall in real earnings growth may well be short-lived.

■ Looking ahead, while household spending growth is forecast to be slower over the next 12 months than it has been over the last few years, we still expect that spending on retail warehouse type goods will grow at an average of 3.6% pa over the next five years. This growth will be supported by a rise in DIY spending as some homeowners choose to refurbish their property rather than move due to stamp duty, as well as wider gentle pick-up in housing transaction levels which will boost bulky goods.

■ This appears to be feeding through into footfall, with retail warehouse parks being the only segment of the retail sector to see a rise in footfall in recent weeks, albeit against a year on year story of fairly flat growth.

^{Source: Savills Research}

Retailer confidence is becoming increasingly mixed

■ Weakening expectations for UK consumer spending, as well as an increasingly negative view amongst US retailers and investors about their markets at home has led to a slowdown in retailer demand for retail warehouse units over the last quarter. However, given that 18 months ago we were commenting on record levels of demand from bulky goods retailers, some degree of slowdown was inevitable.

■ While some retailers are suggesting that the malaise in the US retail sector is likely to come to the UK, we believe that retailers in the UK have responded to the omni-channel world faster than those in the US, and the days of the US sneezing and the UK catching a cold are less common (at least in retail).

■ This weakening of retailer confidence is being felt most keenly in the fashion sector, where mid market retailers are expecting a weaker 2017 and 2018 and are thus reducing the number of new stores that they plan to open, and considering closures at lease expiry.

■ The one area of fashion demand that continues to be resilient is in the sports segment, with both JD Sports and Sports Direct benefitting from broadening consumer demand for athleisure. JD are particularly active in the 5,000–7,000 sq ft bracket, while Sports Direct are looking to exit from some leaseholds in favour of larger freeholds.

■ Strength in the sports segment is echoed by the rising demand for space on retail warehouse schemes from gym operators, with The Gym and Pure Gym currently the most active operators in this space.

■ Furniture retailers are still generally expansionary, albeit less aggressively than they were 12 months ago. In particular, Tapi and Fabb Sofas are notable for their steady expansion, and Wren Kitchens are still expanding with a smaller 10k format.

■ The DIY sector is probably the most interesting at the moment. While it was broadly in the doldrums five years ago, a combination of more people choosing to renovate their homes and the entrance of a new operator have reawakened the segment.

■ B&Q has started to fill in some gaps in its portfolio, and recently acquired a unit in St Albans directly opposite the new Bunnings store.

■ Bunnings’ strategy for the UK is yet to be clarified, but we do expect to see them acquiring some new locations in 2018 once they are well through testing the rebranding of their inherited stores. We also expect to see some relocations in areas where their existing inherited store is too small.

■ Value retailers, both in terms of food and other goods, remain acquisitive and increasingly acceptable as an anchor for a scheme. We will be releasing some research in June on this segment’s rising importance to the retail warehouse market.

■ One disappointing area has been the cessation of activity in the pure homewares market, with both John Lewis and Next having ceased acquiring this store format.

■ For those retailers who are expanding the supply story is becoming increasingly problematic, with the latest research from Trevor Wood showing that vacancy rates in the retail warehouse sector have fallen to their lowest ever level of 5.3%.

■ These low levels of vacancy are putting upward pressure on headline rents in locations where rents rebased a few years ago.

■ We do not expect to see any significant upward pressure on retail warehouse rents over the next few years, and are currently forecasting that average annual rental growth will only be 1% per annum over the next five years. However, there will be a wide spread around this number between the best and worst.

^{Source: Savills Research}

Investor demand for prime assets is rising, but likely to be unsatisfied

■ The transactional volume in the retail sector in the first quarter of 2017 was 85% higher than the volume in the same quarter last year. However, last year started particularly weakly and compared to the 10-year average this year is only 4.1% higher than normal.

■ We expect that 2017 will see an overall higher volume that the £2.6bn that was transacted in 2016, primarily because of a rising institutional demand for the sector.

■ The latest data from MSCI shows that the annual total return on retail warehouse parks and solus units is now 0.9% and 4.0% respectively, and the income return being delivered by the sector is looking attractive in comparison both to other retail segments and the office market.

^{Source: MSCI}

■ This rise in demand is being driven not only by the comparatively attractive yields and returns on offer, but also by a rising acceptance that retail warehousing is comparatively defensive against the structural change of omnichannel retailing.

■ The institutional ideal is a £20–£70m dominant park in London or the south of England. However, there has been very little of this type of asset coming to the market in recent months, and we do not expect that story to change in the remainder of 2017.

■ While some investors may just move onto other asset classes if they cannot find their ideal, we do expect to see some institutions moving a little higher up the risk curve and expanding their geographic focus over the course of the next 12 months. We believe that there are some good quality secondary parks out there where a combination of asset management and re-rating of rents could play dividends.

■ Furthermore, the yield spread outside of the SE may prove compelling with a lack of alternative options pushing buyers to see the benefits of other regions.

■ Prime yields are expected to remain stable for the remainder of the year, thought there will be little transactional evidence to support their pricing.

^{Source: Savills Research}

Top towns for future growth

■ Following on from previous Savills research examining UK locations with greatest potential for uplift in out of town (OOT) retail space, the analysis has been extended further to unearth the key markets that could improve upon their OOT provision by retail sector.

■ The research has examined current out of town retail provision in every UK market (excluding Greater London) relative to the size of its shopper population and has done so across four key retail sectors (leisure is not shown in Table 2 below, but available).

■ Establishing a top five list of markets for each of these sectors, the analysis provides a ‘potential uplift’ figure which represents the extra floor space each market could support if shopper population to out of town floor space density figures were bought in line with the national average.

■ The Manchester market could support the most additional floor space in terms of OOT fashion, requiring more than 145,000 sq ft of additional space to bring their density in line with levels nationwide. Barnsley however has the greatest potential in terms of the proportion the market could grow compared to the current provision, able to support growth of 472%, equating to an additional 71,000 sq ft.

■ The top towns for unsatisfied bulky goods space are all major city centres that rank in the top 10 of the most important shopping locations in the UK. Despite this over half a million sq ft of additional floor space is needed in Birmingham to bring their bulky goods space in line with the rest of the UK.

■ The East Midlands could support more grocery provision. Both Leicester and Nottingham could fulfil two to three additional average sized supermarkets with each market requiring around 170,000 sq ft of further out of town grocery space (an increase of over two hundred percent in both locations).

^{Source: Savills Research}