Rapleys investment market assessment

Investor demand has improved over the last year, driven by UK equity investors and the continued influx of overseas money. Bank sentiment also appears to have improved and the availability of debt from UK banks, insurers and overseas lenders has risen.

However, this has not translated into a more marked increase in transactions, largely because of a lack of product. Supply remains restricted due to the low level of development plus a slow outflow from the banks as ‘distressed’ property is increasingly going into loan portfolios which in turn are being aggressively targeted by global private equity groups.

Overseas investors have increased their share of overall purchases significantly over the last year and a half, and now account for almost half of the total market, although it must be noted that the mainstream UK funds are now back in the market and aggressively chasing stock within tight parameters.

The shortage of opportunities means investors are increasingly looking higher up the risk curve and we are seeing an improved sentiment towards good quality secondary property. The tertiary stock could well see further outward movement.

The yield gap between prime and secondary property widened significantly following the financial crisis. This gap is now stabilising as secondary yields are now far more attractive for investors seeking a degree of risk & higher returns. Yields at the prime end of the market have been broadly stable for the past year.

A welcome change to one of our core markets has been significant demand for well let dealerships nationwide resulting in rising capital values. Following a dearth of dealership investments transacting over the last 2 years the last 4 months has seen a flurry of at least 10 motor dealerships selling. Sentiment towards the roadside sector continues to improve which in turn is now being reflected in superior pricing.

Over the past quarter Rapleys has transacted a number of significant investment deals tenanted by the following covenants: J Sainsbury’s, Marks & Spencer, Vertu plc, Original Factory Shop, KFC, Nationwide Building Society and Musgrave Retail.

Market Snapshot
Currently the market is commanding the following yields by sector for prime stock:

National perspective
Net Initial Yield
Industrials – Solus Units 6.25%
Multi-Let Industrial Parks 6%
Offices 6.5%
High St Retail 5.75%
Retail Warehousing (Fashion) 5.5%
Retail Warehousing (Bulky) 6.25%
Foodstores 4.5%
Forecourt Convenience 5.5%
Dealerships 5%
Hotels 5.5%

*Note – These figures are for best in class properties, long let to secure tenants, without factoring individual locations.