The UK property market has been synonymous with volatility and uncertainty, especially in the commercial sector. However, there’s a surprising beacon of stability that’s starting to command a lot of attention among property investment circles – the retail park sector. This unexpected resurgence is reshaping the retail landscape, with particular focus on out-of-town retail parks, presenting a glimmer of hope for investors worried about the fallout from vacant offices nationwide.
Rekindling Faith in Brick-and-Mortar Retail
On a day like any other, British Land, a dominant name in the UK commercial property sector, announced that its outlook for rental growth at its retail parks is on the rise – by an impressive 33%. This increase is expected to sit between 3 and 5% marking a significant turnaround compared to years of subpar returns experienced in this property subsector. This move reminds investors that brick-and-mortar retail tenacity and adaptability should not be underestimated.
Retail Parks: The Bright Spot in the UK’s Property Market
Often located on the outskirts of towns, these retail parks are evolving to become crucial cogs in the e-commerce machine. They provide much-needed space for warehousing, which complements online sales and click-and-collect services. According to notable property analyst, Rob Virdee, space allocated for warehousing has seen a two-fold increase since 2019, testifying to the rapid transformation of the property sector.
Furthermore, one cannot overlook the footfall these retail parks receive. While traditional high street stores have lost approximately 3,000 units permanently, retail parks have grown and thrived due to the perfect blend of accessibility and convenience they offer to consumers.
Retail Parks and Their Impact on Investment Yields
The resurgence of retail parks doesn’t just resonate with footfall, but also with the monetary gains they offer to their investors. Over recent years, retail property value has experienced a sharp decline, with the peak value being in 2015. Since then, investments have decreased by more than half in value. However, the bright spot remains – as other sectors fall, retail parks rise.
Across the retail sector, investment yields currently waver around the low double-digits percentage range. Land prices have decreased as a consequence of diminishing rent, compelled by tenant struggles. However, the story is vastly different for retail parks. The strong performance of these ‘out of town’ retail establishments has culminated in investment yields being compressed to high single digits. On comparison to the residential and office market, which are likely to further depreciate, these yields have a distinct allure.
Silver Lining for British Land
Britain’s largest retail park portfolio ruler, British Land, should be delighted with these market dynamics. Despite this positive trend, the company has suffered a 20% decline in share value, lagging behind their competitor Land Securities by 15%! A significant reason is the concerns about the company’s recent investments into urban logistics during the pandemic, where the yields were remarkably low.
However, the bright side is that retail parks represent over one-seventh of British Land’s valuation, offering a form of cushion against the weakness in the broader market. The solid performance of their retail parks might provide the necessary buffer to mitigate the challenges they face in the city.
To wrap up, it’s clear to see that, despite the uncertain landscape of the UK property market, the surprising resilience of retail parks emerges as a compelling prospect for investors and landlords alike.