ears of headline-grabbing bankruptcies and empty units on almost every high street in the UK have created the worst possible advert for investing in British retail property.
Even in prime city-centre locations, yields have continued to climb over the past year, reaching 6.5% outside central London. The worst-hit local shopping centres without a supermarket anchor tenant are trading at yields above 15% – a number that is still rising, according to Knight Frank.
But, for bold investors, there are some tentative signs that value may be emerging. Retail capital values increased by 1.1% in August, according to property consultancy CBRE. That headline figure was distorted by the red-hot market for logistics assets, with warehouses up 2.2%, cancelling out continued falls elsewhere. But high-street values alone were up 0.5%, hinting at a turnaround.
The degree of volatility beneath that headline figure indicates how much selectivity was required, but raised the intriguing question of whether the market is now bottoming out.
Time for transition
While part of the market is distressed, there is a chance to ‘invest in renewing or repositioning the high street into more viable assets’, said Rob Cosslett, manager of the £2.3bn Schroder UK Real Estate fund.
He said mixed-use developments and those that can offer leisure and events will have the brightest futures. At the forefront of this trend is Primark’s flagship Bullring store in Birmingham, which opened in 2019 featuring three food venues, a Disney shop, nail bar, barber and salon.
Cosslett is a backer of the Lexicon shopping complex and regeneration project in Bracknell, which opened in 2017, following the demolition of older retail space. It has a 12-screen cinema and multiple restaurant spaces, providing a range of reasons to visit. This regenerated the town centre ‘both through physical buildings and public realm, but also through a thriving events programme’, he said.
Among the funds most bullish about a retail recovery is M&G’s £1.1bn Property Portfolio fund, managed by Justin Upton. The fund holds close to a third of its invested assets in various kinds of retail property, though most of its allocation is to retail warehouses, at 10.9%.
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