According to the latest UK retail warehouse bulletin from international real estate advisor Savills, the overall transaction volume for the first three quarters of 2014 reached £2 billion, 50% up on the same period last year which totalled £1.1 billion.
The research highlights that the main level of demand is still for prime assets, however investor requirements are currently outweighing the supply of stock as the flood of properties predicted to come to the market over the last three months has not materialised. This is a trend that Savills expects will continue as we approach the end of the year.
Savills notes that this increased level of demand for retail warehouse assets has inevitably resulted in continued downward pressure on prime yields with schemes such as Leamington Spa and Blackwater demonstrating that 4.25% is now achievable. The market has moved 75 basis points since December last year.
Jaime Dunster, head of retail warehouse investment at Savills, comments: “It is of worthy note that for the first time we have seen a rise in interest from overseas investors, particularly the US, Canada and Asia, who are in the market for the top-quality assets.
“Despite supply becoming increasingly tight, pricing is key for non-prime assets and we have witnessed a definite shift with investors becoming more discerning in their approach to these retail warehouses.”
In the lettings market, Savills expects that retailer demand will continue to strengthen as consumer confidence rises, with an improvement in disposable income and the continued recovery of the housing market beginning to have a positive impact on the sector. The strength in the housing market is reflected by the increased number of acquisitions by bulky good retailers, who are currently more active than the fashion sector. Active retailers include Dunelm, Harveys, Oak Furnitureland, Wren Living, DFS, and Sofaworks, along with new entrants such as Furniture Barn.
The bulletin reports in prime locations in the South East there has been some recent upward pressure on rents due to tight supply of available space and high demand from occupiers. An example of this would be Springvale Retail Park in Orpington where recent lettings have achieved £38.50 per sq ft (£409 per sq m), approaching the levels set during the mid 2000’s which reached £40 per sq ft (430 per sq m).
Dominic Rodbourne, head of out of town retail at Savills, comments: “Looking ahead, confidence will undoubtedly continue to improve as arguably the retail warehouse sector will benefit more from the UK housing market than the high street. We expect that by 2015 that average rental growth for the sector will be positive and our current forecast is now just under 2% growth per annum for the period 2014 – 2018. However, in some secondary locations especially where there is an over-supply, we could still see some further rental deflation.”