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One area where retailers are doing better than ever (albeit mainly in London) is at the top end of the market. In April, BNP Paribas reported that the lack of space and spiralling rents in London’s top areas such as the Bond Streets (Old and New) and Sloane Street was persuading luxury retailers to look at adjacent areas. In Mayfair this means locations such as Brook Street, Bruton Street and Mount Street. One of the factors driving this is the high-spending approach of shoppers from China, Russia and the Middle East. They are just as active in the investment market. CBRE figures indicate that while five years ago 20% of central London’s retail investment was accounted for by foreign money, that figure is now 70%.

most investment. He says: “There does seem to be a trickle down to secondary now, even if there is still an issue of matching the price expectations of buyers and sellers.” One reason that investors like shopping malls, he says, is that it enables them to own something as a single entity. “If you invest in a high street you always face the challenge that you are affected by what your neighbours might or might not do,” he says. “Shopping centres give you scale and control.” But the complicated and layered

nature of the investment market was revealed in April in the IPD UK Retail Property Auction Index, which indicated both that the four-year decline in retail values was slowing and that there was increasing investor demand for retail. Greg Mansell, head of research at IPD, says: “Sales at auction give a rather alternative perspective on the future of the UK’s high street. While in other areas of the commercial property investment market buyers are concentrating almost exclusively on prime assets let on long leases, the investors who buy at auction are taking a less risk-averse approach.” They may be taking a risk, but they are

not stupid. The point about the high street, like everything else in the UK property world, is that if you invest wisely you can make money. But picking the right investments is a tricky matter.

buy the top performers. And, in contrast to the carnage on the high street, the largest shopping centres appear to be doing very nicely, thank you – particularly the most fashionable. Trinity Leeds, for instance, registered the highest average spend of the Land Securities regional portfolio in its first month of trading this year. Two of the most significant recent

deals, says Rhodri Davies, senior director in the shopping investment team at CBRE, are Midsummer Place in Milton Keynes, sold by Legal & General to Intu for £250m at a 5.1% yield, and the Friary in Guildford, sold to Prupim by Hermes for £150m at a 5% yield. “And there was real competition for both of those,” adds Davies. Even so, Davies points to the best

secondary centres such as Lion Walk in Colchester (sold in February at a 7.3% yield) and The Lanes in Carlisle (sold before Christmas at a 7.5% yield) as offering some of the best value. He takes the now familiar line that

although primary centres might be most appealing to investors, dominant centres in secondary locations can provide good value. Even so, the market remains driven by the fact that retailers do not need as many stores to cover the

At a glance

✹ Mall development in Europe in 2012 was 10% up year-on-year to 17.1m sq ft ✹ One of the most active areas is Istanbul, which is building 32 malls ✹ Driven by high-spenders from China pand Russia, luxury retailing is booming ✹ Yields for the best shopping centres are expected to continue to fall

country as they once did. Charles Barke, head of shopping

centre investment at Cushman & Wakefield, says that what he calls “the aggression towards prime” means that yields for the best centres will continue to fall. He adds: “I think there may be pressure on the next tier down with 5.5% falling to 5%, and 7% to 6.5%. In the medium term I would not be surprised to see 5% yields applying to 15 or 20 locations, as opposed to four or five”. Ed Cooke, director of policy at the

British Council of Shopping Centres, agrees with the analysis that prime and good secondary sites are attracting the


For many investors, finding something to put their money into continues to be a problem. Damian Lloyd, director at GVA, is among those who highlights what he calls “a dearth of investment opportunities”, at least outside London. But he does see light at the end of the

tunnel. He says: “As we move through the year, it is becoming more likely that we have now passed the tipping point for property investment and are beginning to climb out of the slump.” One way for the weight of investment

cash to find a way into the retail market is through forward funding, such as that by private property investor fund Osprey Income and Growth 2LP, which is backing the acquisition of a £40m Tesco superstore to be built in Rotherham. The store will have an unbroken 30-year lease with rental uplifts linked to RPI. Nick Short, partner of Prime Retail,

which advised on the deal, says: “This is a significant deal in the current market given the continuing mismatch between high demand from investors and occupiers for food stores and limited development finance.”

Summer 2013 39


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