Overall, investor appetite for UK Alternatives remains very strong, with mature and reliable subsectors of the retail market, petrol filling stations and convenience stores offering highly attractive investment opportunities and desirable yields.
This is the main message according to the latest report on Alternative Investments in the UK by specialist business property adviser, Christie & Co. The report, UK Alternatives Investment Index: H1 2019, provides an overview of currently achievable yields on prime and secondary investments across various subsectors. The report finds that the average yield on prime investments across UK alternatives as a whole ranged from 3.5% to 7.5%.
Prime investments in the petrol filling station sector showed much greater compression compared with the average, with 5% to 5.5%, while secondary investment yields demonstrated a slightly greater spread ranging from 6.5% to 9%.
Generally, investors in this space look for long lease investments of around 20 to 25 years and strong covenants. As supply of these high quality, attractive assets is limited, and there is good availability of debt finance at competitive levels, Christie & Co anticipates the yields for these prime investments to remain stable.
The convenience retail sector demonstrates yields of 4.5% to 4.9% for prime investments and 5.5% to 7.5% for secondary investments. As investors have moved away from high street retail towards food retail, Christie & Co identifies convenience store and smaller format supermarkets as the more resilient and attractive investments. Smaller funds, private investors and family offices are seen to be the most active in this space particularly for lot sizes below £1.5 million and Christie & Co notes that this is likely to be the case throughout 2019.
The report also touches on the still-maturing garden centre market, that witnessed its most active year and largest volume of transactions with the sale of Wyevale Garden Centres – handled by Christie & Co. With limited evidence to index investment yields accurately, indicative deals include the sale of Wimborne Garden Centre at a 6.6% net initial yield and an earlier deal in which Blue Diamond completed a sale and leaseback of two recent Wyevale acquisitions and an existing centre which raised £26m before costs. This demonstrates that there remains appetite from institutional investors for prime garden centre investment deals.
Steve Rodell, Managing Director – Retail at Christie & Co comments, “The market for convenience retail investments is well established and will remain buoyant against fading interest in high street occupiers. Petrol stations also remain in demand despite some concerns over their long-term viability in the face of alternative fuels. Occupier demand speaks volumes in the other direction and well-located roadside retails sites will always hold strong underlying residual value.
“We expect considerable ongoing momentum in the garden centre market off the back of Wyevale. We ignited Interest in the sector not only amongst trade buyers but also real estate investors and property developers. The diverse underlying garden centre business looks favourable against a gloomy high street retail outlook. So, any opportunity to invest in an established well operated garden centre will attract a good level of interest.”