UK retail investment rebounds

Oxford Street shoppers

Investment in UK retail property is beginning to rebound with transaction  volumes totalling GBP2.76 billion in the first half of the year, up 80 per cent on the same period in 2020, according to new analysis from Knight Frank.

Knight Frank’s latest Retail Investment Update shows activity in the first half was driven by increased investor demand for retail warehousing with transactions exceeding GBP1 billion, including Brookfield Properties’ GBP330 million acquisition of a portfolio of assets from Hammerson.
 
There is also very strong competition for foodstores, which saw GBP780 million of investment in the period, with REITs and institutions in particular attracted to the longer leases and stronger covenants versus other retail sub-sectors.
 
Knight Frank’s analysis shows a number of investors are beginning to capitalise on counter cyclical buying opportunities for shopping centres, with GBP511 million transacted in the period, and activity expected to increase further as yields stabilise. High street retail accounted for GBP429 million of capital invested in the period, with buyers focused on unlocking the alternative use potential that exists in some locations, in particular the South East.  
 
Knight Frank estimates that transaction volumes could exceed GBP6 billion in 2021, the highest level since 2017, with significant stock set to come to the market in Q4 and a stabilising occupier market. 
 
Will Lund, Partner, Retail Capital Markets, Knight Frank, says: “Demand for foodstores and retail warehousing is red hot, with buyers attracted by the relatively stable, long-term income offered on assets that have not been significantly impacted by the growth of e-commerce.
 
“There is also increased interest in shopping centres, with many buyers feeling there has been an over-correction and some centres are either well-priced, or have significant alternative use underwrite. Similarly, on the high street activity is largely driven by those with the expertise and capital to reposition or repurpose assets.”
 
Sam Waterworth, Partner, Retail Capital Markets, Knight Frank, adds: “As we forecast in 2020, in the first half of 2021 we have seen the beginning of a rebound in market activity as investors begin to capitalise on counter-cyclical buying opportunities in retail.
 
“It has been a tumultuous year for retail, but the market is beginning to stabilise, retailer failures have slowed and ecommerce has plateaued after the artificial peak of 2020. This is likely to support investment activity in the second half, with many buyers feeling we are at, or very close to, the bottom of the market and that retail is set to benefit from the UK’s economic recovery from COVID-19. We anticipate retail transaction volumes will grow to GBP6 billion-plus in 2021, a level not seen since 2017, as more investors look to the sector for a counter cyclical buying opportunity.”