MONEY
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AS THE DEBENHAMS AND ARCADIA SITUATIONS PLAY OUT, THERE WILL BE MORE UNCERTAINTY BUT THE POTENTIAL FOR REPURPOSING AND AN OVER-CORRECTION IN PRICING WILL PRODUCE BUYING OPPORTUNITIES.
THE HIGH STREET A number of bargain hunters have emerged on the High Street during the past six months. Yields have been softening since 2016 and the valuation lag is finally catching up with vendors’ pricing expectations.
Historically, this type of opportunistic buyer has looked to the tertiary section of the market to generate required returns, but now repriced prime and secondary assets look interesting.
An example of this convergence of buyer and purchaser is the Boots on Coney Street, York.
The property was originally brought to the market in May of last year for £16.45m reflecting a 5.35% net initial yield. At £940,000pa, the passing rent was double the ERV and despite there being 4.5 years unexpired on the lease, the potential fall in rent at expiry was just too great for buyers. The asset was repriced at 6.5% but eventually sold to a local investor for just over £10m at a yield of 8.79% – a 340 basis point discount on the initial quoting terms.
As the Debenhams and Arcadia situations play out, there will be more uncertainty but the potential for repurposing and an over-correction in pricing will produce buying opportunities. Hotel operators have been the fastest to capitalise on this structural change and we are advising on two former department stores whose futures have been repurposed and are now being marketed as fresh opportunities.
EXECUTIVE SUMMARY
THE MARKET
RETAIL REIMAGINED
MONEY
IS THIS THE END OF THE GOLDEN AGE OF ONLINE RETAILING?
RETAIL WAREHOUSES This sector has not been immune to the wider retail malaise and given that UK institutions – who have been the dominant owners are generally down-weighting their retail exposure – there have been very low investment volumes.
With most funds effectively out of the market, the notable exceptions were M&G’s purchase of The Crown Estate’s stake in Fort Kinnaird in Edinburgh for £162m, and Quadrant Estates’ sale of the Gallagher retail park for £175m.
One area of the sector which was relatively robust was DIY – especially for smaller stores in the South East that have residential development potential.
We acted for LaSalle Investment Management on the sale of the Wickes store in South Ealing. Located close to a transport hub and in a predominately residential area, the store didn’t have planning for residential conversion, but with 12 years on the lease, a strong covenant, and possible redevelopment potential, it generated numerous institutional bids and sold at a yield breaking 4%.
It was a similar story at Ilford retail park where Montreaux paid £17.65m at a yield of 2.4% on the basis of residential development upside.
KNOWLEDGE
SHOPPING WITH A CONSCIENCE
FOOD
REGIONAL UPDATES
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