By Emanuela Barbiroglio

Investment in out-of-town retail parks bounces back

After a sluggish start to 2016, investment activity in the out-of-town retail market recovered towards the end of the year, the latest data from Savills reveals.

Transaction volumes

While annual investment volumes were 34% down on an exceptionally strong 2015, they totalled £2.5bn for the year as a whole, which is only slightly down on the market’s long-term average of £2.6bn.

The year got off to a quiet start, with only £354m sold in the first quarter – almost half the volume sold in the same period the previous year. However, a drop in pricing after the EU referendum helped to stimulate activity and the year ended on a high with £983m worth of sales in the fourth quarter.

Average lot size

“The year started slowly with the perception that values had reached a high in the third quarter of 2015, which resulted in very low transaction volumes in Q1 2016 as owners and buyers were at an impasse on pricing,” says Jaime Dunster, retail investment director at Savills.

“Since the EU referendum, we have seen a return in confidence as to where current market pricing sits, which bodes well for a less turbulent 2017.”

The sale of several high-profile lots – such as Kingsgate Shopping Park in East Kilbride, which was sold by Aviva Investors to Orion European Real Estate Fund IV for £90m – also helped boost 2016’s transaction volumes.

Purchaser type

Councils emerged as an important group of buyers over the course of the year. They completed 16 deals – equivalent to 7.43% of total volumes – up from just three deals in the previous year.

Meanwhile, funds scaled back their investment in the sector. After accounting for 70.3% of purchases in 2015, they were responsible for just 53% of acquisitions last year. They also ramped up their disposal activity in 2016. They sold 68 lots in total, accounting for 52.4% of sales, up from 43.5% the previous year.

Vendor type

Savills says it is optimistic about the outlook for the market, pointing in particular to the suitability of retail parks for click & collect.

“The combination of low rents and large units for sales and storage will mean that this sector is well placed to capitalise on the continued transition to an omni-channel world,” says Mat Oakley, head of commercial research at Savills.

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