Retail warehouse market shows improvement but remains polarised
London, UK – Notwithstanding the current economic uncertainty, the retail warehouse occupier market is in better health than two – three years ago.
A combination of steady demand and limited new development has helped to erode the vacant space left by store closures as a result of the downturn. Indeed, the latest available overall vacancy rate from Trevor Wood Associates is now estimated to be 9.2%.
However, the market remains polarised in favour of schemes with more open planning consents, which currently have a relatively healthy vacancy rate of 6.8%. In contrast, the bulky goods vacancy rate stands at 10.8%, marginally up, driven by a number of store closures
Nonetheless, retailers across a variety of sectors continue to expand their out-of-town presence. These include both “traditional” players, including some DIY, home wares and garden chains, as well as those operators more closely associated with the high street, such as clothing, footwear and health and beauty. Discounters have been the most active in terms of new space, a number of which have been expanding aggressively in the last 6-12 months.
The latest IPD data shows a marginal uplift in retail warehouse rents, although the only significant growth is occurring on parks which have had their planning consents extended from bulky goods to Open A1.
So far in 2012, the investment market has been characterized by more limited availability, with the majority of deals being sub £35m lot sizes which are high-yielding and secondary. Prime yields for Open A1 schemes edged up by 10bps to 5.25% in June, while yields for bulky goods schemes have seen a softening of 40bps to 6.15% since April, reflecting the uncertain economic outlook and weak consumer sentiment.
Darren Yates, partner in Knight Frank’s Commercial Research team, said, “With gains through organic rental growth or yield compression unlikely in the short term, most investors are focused on the very best assets which have a strong, diverse tenant mix and sustainable rental levels. They also seek parks which have realistic asset management angles which enable them to enhance value through change of use, lease re-gears/re-lettings or additional development”.