According to Colliers International, investment in UK retail property is on the increase, with more than £5bn of acquisitions by overseas investors forecast to take place by the end of the year, despite ‘stubbornly high vacancy rates’.
Colliers Midsummer Retail Report, said that in 2014 there was £4.6bn of overseas investment into UK retail property, slightly ahead of 2013’s figure – and Colliers advises that the trend appears to be quickening, with £2.8bn already spent by foreign investors on UK retail assets just half-way into the year.
The competition for the best retail properties is being fuelled further by cheap debt finance, which enables investors to leverage their buying power.
James Watson, Head of UK Retail Investment at Colliers’ commented: “Debt is most certainly back in the market. And if the return of cheap debt is a sure sign of a bull market, then that is very definitely what we’ve got.”
Mr Watson adds that senior debt is available with a loan-to-value ratio of more than 70 per cent and, combined with the “extreme cheapness” of borrowing, “it’s clear how that is influencing buying in the market”.
Also reported was how the value of retail property is on the rise, while yields are seeing a decline. The All-Retail IPD equivalent yield hardened in Q1 2015, with this declining trend expected to continue. Colliers has forecast an inward movement of 26 bps for the All-Retail yield by the end of the year.
James Watson continues: “The sharpest compression is likely to be in shopping centres-around 40 basis points-followed by standard shops (32 bps) and retail warehouses (26 bps).”
Despite the problems plaguing British high streets, that sector of the retail property market last year managed to attract £2.39bn of investment- a 30% jump from 2013’s level.
However, with the investment market seeing an upward boom, rents remain muted in contrast. Colliers analysed 421 shopping pitches across the UK and the results show that there is a very modest rental growth in selected locations, with Central London continuing to contribute most, with rental growth expected to grow by 7.7% this year.
The report also says that overall, UK retail rents are expected to rise by 1.4% this year, slightly accelerated compared with 2014’s level.
Colliers also analysed the level of vacant units in 15 key locations across the UK and results showed they remain “stubbornly high” at 14.7 per cent.
Colliers’ Head of UK Retail, Mark Phillipson, said: “An over-provision of shopping and obsolescent units in towns and cities across the UK is creating ‘sticky’ space- shops that have little prospect of letting.”
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