A lack of investment assets in the West Midlands means there is a large weight of money chasing any stock that does become available, according to research from Savills.
Buyer appetite for multi-let industrial and distribution assets remains particularly strong and, across all sectors, the majority of investors are looking for defensive long-term income. As a result, yields are coming in across the board.
“For investors focused on the West Midlands but seeking value in the current market, secondary high-street retail assets could present a golden opportunity,” says Ned Jones, investment director at Savills Birmingham.
The research shows that average prime high-street retail yields in the region are currently 4.87%, compared with 7.94% for secondary high-street assets. This reflects a yield spread of 307 basis points, which is 81 basis points ahead of the long-term average spread of 226.
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“In a nutshell, the yield gap is much wider than normal, making now an excellent time for value-seeking investors to buy secondary high-street assets,” says Jones.
In a nutshell, the yield gap is much wider than normal - Ned Jones, Savills
While some general nervousness around high-street retail investment exists among investors, mainly linked to continued pressure on rents, evidence shows that assets in the right locations still present value while providing defensive qualities.
“An example of this is the significant interest we have seen from property companies and private investors in a high-street retail investment sale Savills is handling on Vicar Street in Kidderminster, where the quoting price is £3.4m, reflecting a net initial yield of 8%,” says Jones.
“This is an example of a good secondary block with a strong line-up of seven tenants, including WH Smith, Superdry and Carphone Warehouse, that offer asset management angles.
“We will also shortly be marketing a similar investment in Newark [in Nottinghamshire], let to three national multiples and are expecting to see strong interest at our quoting price of £3m, reflecting a yield of 8.25%.”
While Kidderminster and Newark may not necessarily be an obvious choice for investors, they highlight the strong fundamentals in the West Midlands.
These include a good trading pitch, a national multiple tenant line-up, an asset management analysis and a yield margin of more than 300 basis points above prime levels, says Jones.
“We have also recently completed on the sale of the Orion Building in Birmingham city centre for £4m to a private trust, reflecting a yield of 6.35%,” he adds. “This was considerably higher than the original guide price and with a lower yield, as pricing was pushed on due to very strong interest.”
If that strong interest continues to be seen across the West Midlands, the result could be just the sort of investment secondary high streets have been crying out for.
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