January 2025
In this three-minute summary of the retail investment market, agents Mrs. Positive and Mr. Negative present contrasting views.
Mrs P: With the combination of base rates in retreat and the occupational market continuing to strengthen, we have witnessed improved pricing and liquidity throughout 2024. The majority of retail assets acquired in or before Q1 2024 would have performed well. Investor demand for retail assets from shopping centre to retail parks is the deepest for a decade. The sector is on an upward trajectory.
Mr N: Undoubtedly conviction has returned to the retail sector but are the headwinds facing the economy and occupiers going to derail the recovery? Labour’s budget has increased costs for retailers. Upping the national living wage and lifting NIC from 13.8% to 15% has impacted all businesses. However, lowering the threshold NIC kicks in has significantly, disproportionately, affected employers of part time workers.
Mrs P: Agreed but once fully understood and absorbed through price rises, occupational demand is very strong for the right product and we will continue to see meaningful rental growth in the best centres.
Mr N: Surely price rises and wage inflation is going to fuel inflation and that is partly the reason why 10 year Gilts have increased from 3.8% to 4.8% over the last 3 months and 30 basis points this week! No wonder some steam has come out of the market since the budget, has the investment market adjusted?
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 for the majority of retail assets, helping to drive returns and pricing.
Mr N: The depth of the buyer pool for core and add value assets is encouraging. 2025 was the year everyone predicted central banks were going to meaningfully cut rates which would have driven the market with core plus money potentially re-entering the market. With inflation now heading in the wrong direction, are we going to see rate cuts, or dare I say it, rate rises? How much will this impact investor demand?
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. The investment market is following a similar path. Capital seeking super prime assets is growing and is a catalyst for others entering the sector, encouraging more institutional capital to invest in high quality stock for the first time this decade.
GCW: Our opinion is that the retail market offers compelling value vs other sectors. Forensic due diligence and careful stock selection is fundamental, the sector is displaying a convincing balance of resilience and opportunity in the right pitches and locations.