2 August 2023
Out-of-Town Retail & Leisure continues to be best performing sector of the retail property market
Industry News, Retail & Leisure, SHW News
The Out-of-Town Retail and Leisure market has continued to be the best performing sector of the retail property market, according to SHW’s Retail Focus Q3 2023.
Jeremy Good, Director at SHW, which recently merged with Ashwell Rogers, says: “Whilst the sector suffered from rental falls in the period leading up to and immediately after the Covid-19 pandemic, the rebasing of rents has been coupled with a period of greater stability. Until Wilko announced their plans for a CVA in July 2023, there had been a three-year period without any significant CVA activity or retailer failures and this, coupled with demand from food and non-food sectors, has led to a drop in national vacancy rates.”
The latest figures show a national rate of 5.4% (Trevor Wood Associates, July 2023) down from 8.4% in Q2 2022 but this figure is propped up by some long-term vacancies in obsolete stock.
Jeremy adds: “From our involvements across the country, it is clear that the true vacancy rate in some areas is virtually zero, especially in the 7,500 sq ft to 10,000 sq ft sector. Retailers continue to see the benefits of an out-of-town location and whilst recent activity is mainly in the discount sector, both food and non-food, there remains a balance between supply and demand. The gym operators continue to make their presence felt in retail park locations where rents are more affordable.”
The Retail Focus Q3 2023 reports that there is little new stock coming on stream in the out-of-town retail market and, whilst there is not significant unsatisfied demand, new requirements are beginning to put pressure on rents and incentive packages. The trend for larger units to be taken out of the sector has continued, especially inside the M25, with a number of logistics operators and developers buying existing buildings for their future development plans.
The area of greatest activity in the sector remains the drive-thru restaurant and coffee shop sectors. A number of new entrants over recent years have led to intense competition in certain locations which is beginning to drive rents upwards. The new names including Tim Hortons, Popeyes, Taco Bell are continuing to compete with established occupiers such as McDonalds, Burger King, KFC and Costa pushing rents upwards into the £70/£75 per sq ft territory in some key areas. Again, the limited supply of new sites is increasing competition along with competition from other uses such as EV Charging Centres.
In terms of investment activity in the sector, Jeremy says: “This has slowed over recent months, but the combination of reasonably large lot sizes, with good covenants and often on longer leases, has seen yields hold up reasonably well with yields for prime opportunities remaining relatively static.”
In the South East, on the high street, prime retail continues to struggle in most key towns and, as a reflection, rents are reducing in order to create activity. Richard Pyne, Partner at SHW says: “Demand for well-positioned secondary and tertiary units remains driven by the ‘buy local’ trend which has continued despite many workers returning to the office. As a result, prime and secondary rents have remained broadly static following a repositioning over the last few years and we expect this to remain throughout 2023.
“Many retailers continue to reinvent the way they trade in order to survive. For the traditional high street to remain vibrant and viable, owners and local councils need to work with tenants to keep shops open and consider diversification to ensure footfall is increased.”
To read more and to see the latest retail rental values, the Retail Focus is available upon request.