Opinion: Oli Horton

In this three-minute summary of the retail investment market, agents Mrs. Positive and Mr. Negative present contrasting views.  Despite Mr. Negative's prior forecasts proving prescient, there remains hope that Mrs. Positive's outlook will guide us through the impending months.

Mrs P: Inflation appears to have peaked, signalling a potential decline in base rates. Retail sales continue to defy pessimism leading to stabilisation in the occupational market. This is a generational buying opportunity! The numbers of buyers have significantly increased in 2024 with most assets going to best bids.

Mr N: We’re not yet clear of inflationary pressures. Geopolitical risk is sending commodities, and especially the cost of oil, upwards. Headwinds are continuing to disrupt the economy and consumers from all directions. With Wilko, and more recently Ted Baker failures, is the occupational market falling back to earth after defying gravity for so long?

Mrs P: Everyone has less spending power, but the UK has not kicked its shopping habit. Internet shopping has peaked/reached a complementary balance with physical stores. Retail sales remain remarkably resilient, and most listed retailers have recently posted profit upgrades.

Mr N: But people can’t keep kicking the can down the road. Credit card debt is the highest on record, having increased by 8% last year. Holes are appearing, with mortgage payment defaults up 7% on last quarter. 

Mrs P: Not all retail has/will fare the same. Experiential and convenience centres continue to perform well with selective rental growth off rebased rents. However, I will admit there are plenty of oversized squeezed middle locations with a challenging future. The investment market is following a similar path. The capital seeking super prime assets is encouraging and is a catalyst for others entering the sector. Lone Star buying Union Square in Aberdeen and Blackstone investing on New Bond Street are positive examples.  

Mr N: Many investors have suffered losses, lured by false dawns over the last few years. Why is it different this time?

Mrs P: Rents and capital values have rebased, cashflows are sustainable and the sector is compelling vs other sectors. Although still challenging, debt is increasingly available and is accretive on the majority of retail assets, helping to drive returns and pricing. Consequently, the convenience/high yielding market has become increasingly competitive.  

Mr N: The depth of the buyer pool is positive, however the bid spread between buyers and sellers is still inhibiting most transactions that are not pressured sales. An upcoming election and higher for longer base rates will lead to continued stagnation for at least another 12 months (not what agents want to hear).    

Mrs P: The biggest problem is product availability. Why would you sell now if you don’t have to?  But the market is on an upward trajectory and the right assets are seeing multiple rounds of bids.  There is a lot of capital seeking to deploy into the sector that, dare I say it, is achieving prices not seen for some time, due to the supply squeeze. 

GCW: Our opinion is that the retail market offers value vs other sectors. Forensic due diligence and careful stock selection is fundamental, but the sector is displaying a compelling balance of resilience and opportunity in the right pitches and locations.