Where are the most attractive high-street retail investment markets in the UK at the moment - those locations that offer the best value while being structurally sound from an investor perspective?
That’s what Savills set out to establish in its recently released retail town ranking. The company looked at structural drivers such as: unemployment rates including forecasts; retail spend leakage; and property fundamentals, including vacancy, rental growth forecasts and yield spread to previous peak.
The top 15 markets it identified were (in no particular order) Cambridge, Guildford, Oxford, Richmond, Exeter, Bath, Kingston, York, Cheltenham, Canterbury, Tunbridge Wells, Chelmsford, Edinburgh, Leamington Spa and Southampton.
Savills’ retail director Dan Walker says a key influence in the top 15 is that they are all defensible markets. “In the majority of cases, there has been a lack of supply, with the ability to deliver new stock of prime retail property very restrictive.”
While many of the towns and cities that made the top 15 might be surprising, some of the locations are already on the radar of retail investors, according to Savills’ investment director Katie Taylor. “There has been particularly strong investor demand for prime towns such as Kingston and Guildford, as evidenced by the inward movement of yields over the last 12 months,” she says.
Marie Hickey, research director at Savills, who carried out the research, says that although high-street retail has lagged behind the recovery in the wider UK property market - average rents, according to MSCI, are still 11.5% below their 2008 peak -this is partly down to structural shifts related to the growth in online retail.
She adds that as retailers increasingly develop a multi-channel offer, coupled with some of the pure-play online retailers moving into bricks and mortar, demand for stores shows no signs of waning.
“Key for investors is identifying those centres where the occupational drivers are the most robust and therefore best placed to weather any future ‘storm’,” says Hickey. “The gap between pricing and upside in rents is clearly demonstrated when you look at yield spread to the previous 2007 peak and rental growth forecasts for the top 15 markets. Richmond is the only market where yields are below where they were in 2007 and it also leads in terms of rental growth.”