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Commercial property buyers fret concerning the quantity of empty desks sitting within the UK workplace market. They may console themselves by contemplating the sudden revival of the nation’s out of city retail parks.
On Tuesday British Land reminded the market that bricks and mortar retail has not vanished. The diversified UK landlord lifted its outlook for rental development by a 3rd at its retail parks, to between 3 and 5 per cent. After years of poor returns this sector exhibits indicators of restoration.
In truth, retail parks provide one of the sector’s brighter prospects. Out of city sheds now allocate more room for ecommerce warehousing. This allows multichannel codecs equivalent to on-line gross sales and click on and acquire. This storage space has doubled since 2019, says Rob Virdee at property analysts Green Street.
The reinvention has turned their fortunes round. Tenants who survived the worst now thrive, delivering higher money flows.
Retail property valuations peaked in 2015. Since then they’ve greater than halved. High streets have misplaced round 3,000 models completely, the discount at procuring malls has been smaller. But provide retail parks have grown.
Rental yields inform the identical story. Across the retail sector, yields now hover within the low double digit share vary. Capital values have dropped as landlords anticipate decrease rents from struggling tenants. Meanwhile, improved efficiency for retail parks has compressed yields all the way down to excessive single digits. That seems to be enticing when in comparison with residential and workplaces, the place valuations may fall additional.
This must be excellent news for British Land. It has the biggest retail park portfolio within the UK. Even so, its share value has declined greater than 20 per cent this 12 months, trailing rival Land Securities by 15 per cent. Some doubts about British Land’s technique persist. It purchased into city logistics (warehousing) in the course of the pandemic at very low yields.
But retail parks accounted for over a seventh of British Land’s valuation as of March this 12 months. These ought to provide some buffer in opposition to any additional weak spot within the group’s bigger publicity to the City.
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