Opinions.

Opinion: Oli Horton

At GCW, our investor team has enjoyed a busy first quarter. The market is showing encouraging signs of recovery, buoyed by increased appetite for prime town centre assets.

It has been a positive start to the year for the prime town centre investment market. A number of factors are driving demand, namely improved occupational confidence, internet spend retreating towards pre Covid levels, sustainable rents, and attractive yields compared to other sectors in a world of increasing interest rates.

The top 50 centres are proving particularly attractive. As occupiers consolidate to focus on prime pitches, vacancy rates are dropping, and the supply / demand balance is beginning to correct itself. The right product in the best towns – dare we say it – could potentially experience rental growth over 2022/23 as occupational demand continues to improve and supply falls in addition to the rates revaluation set to reduce occupational costs further next year.

We have seen yields compress by c100-200 basis points in the last 6 months. Liquidity has improved with competitive tension on most assets. For single let assets, demand has been driven by private investors, especially recently from Hong Kong, and on larger multi let blocks or shopping centres by new capital from a growing list of local and regional propcos or private equity. In addition, the best vanilla products are now attracting a level of fund interest that has not been seen for several years.

Whilst the majority of purchases are being made on an unleveraged basis, we are starting to see the availability of debt on low LTVs return to a level which we believe will compress yields further throughout 2022. That being said, with rising inflation and costs now becoming real, will the consumer squeeze dampen sentiment? Retail spend has historically remained resilient during periods of inflation and larger ticket items such as holidays and cars have witnessed a significant decrease in spend.

We anticipate the consumer squeeze to further accelerate polarisation in the occupier market. This will result in major regional cities and affluent market/commuter destinations outperforming areas with less disposable income.

GCW has transacted prime town and city centre assets right across the UK in recent months in locations including Bath, York, Windsor, Edinburgh, and Reading. We have more than 30 years of experience advising buyers and investors and have developed in-depth knowledge across all use categories. GCW are in a unique position as their market leading occupier team can provide investors with confidence to support an asset’s disposal narrative/business plan.