November 2024
Going to the lowest depths can mean many things, but for the retail sector, it is a positive, as the consensus is the market has now bottomed out and has done since the summer of 2023, if not before.
How do we know? Inflation rates are coming down, stability is being seen in interest rates, there is more confidence in occupational markets and investors are again seeing value in the market, which is starting to translate into the tightening of yields.
For the last 12-18 months, certainly in the shopping centre world, yields are at historic highs, and while not as high in high street retail, prime high street assets in Central London, and major regional cities like Birmingham, Manchester, Liverpool, Oxford, and Cambridge are certainly offering an attractive yield discount when compared to historic pricing.
It is positivity originating from these new assets in regional areas that is increasing demand for prime assets in prime locations which is fuelling price recovery, as shown by GCW’s sale of the flagship White Company in Oxford for sub 6%, setting new benchmark for the 2024 high street market.
There was some concern that the UK’s snap general election earlier this year, may de-stabilise the market, but the reality is that the election result was a foregone conclusion, and the market momentum has continued.
Recent reduction in interest rates, and therefore bank saving rates is further good news for the high street market, where achievable yields show a marked premium to savings rates, strengthening the case for High Street retail investment.
However, there are broader macro-events which have potential to upset this positive trajectory. Recent instability in the financial markets, and specifically uncertainty regarding the health of the US economy could create some unwelcome turbulence, and a more cautious approach from investors.
And ongoing unrest and rioting seen in some UK locations could also impact investor appetite, although more likely in secondary locations.
So, let us focus of what we do know, and that is what has been happening over the last 12 months.
It has been an upbeat time as prime assets in regionally dominant areas have maintained high demand, and selective yield compression.
Since January 2024, improvement in demand has become more apparent with downward pressure on both interest rates and inflation driving the market. We have seen specific buyer focus on London, and the main regional centres mentioned earlier, with Cambridge and Oxford specifically attracting interest from overseas and domestic private investors.
There has been huge liquidity in the Central London high Street market with a consistent flow of assets coming to market, attracting significant investor attention. The South Molton Street portfolio, Bow Lane Estate and Charlotte Street portfolio have all come to the market within the last six months.
Prime Kingston, where GCW are highly active having completed five transactions in the last two year, and similar affluent areas with loyal catchments, are thriving again and benefitting from improving occupational demand.
As a result, we have seen liquidity in the retail investment market, with numerous counter cyclical prop cos, private investors, and smaller funds seeking opportunities where the yields are higher compared to historic averages, and capital values are low.
Opportunities are real for these investors to buy at compelling yields, with the rationale that by mid to late 2025, inflation will reduce, interest rates will come down further, there will be even more stability within the market, and they will see marked capital value improvement.
Overall, what we are witnessing is a turning point in sentiment for the market, and the demand for high street retail, particularly in prime and affluent locations is building.
Yes, macroeconomic events require close monitoring and have potential to erode this positive momentum, but make no mistake, those willing to take the opportunity to invest now, could well reap significant rewards.