2022-12-09-莱坊-Retail_Investment_Update_H2_2022_5页_5mb

Retail Investment Update Summary

Core Content

The Retail Investment Update provides an overview of the performance and outlook for various retail subsectors in 2022, highlighting the impact of macroeconomic factors, interest rate changes, and market dynamics on investment activity and returns.

Main Retail Subsectors Overview

Retail Warehousing

• Performance: The strongest performing retail subsector with a total return forecast of 11% for 2022 (MSCI), driven by capital growth and income returns.
• Yields: Yields have moved out by 100bps to 5.75% for the best quality stock, but the sector's strong underlying occupational dynamics and flexibility suggest that any cooling of demand will be short-lived.
• Investor Activity: Institutional buyers are expected to return to this sector early in 2023, potentially reversing the yield increase.
• Key Transaction: Purley Cross Retail Park, Croydon is believed to be under offer to a UK Fund at £56M / 5.75% NIY.

Foodstores

• Performance: Experienced a swift correction due to record low yields from last year, as investors adjust to a higher interest rate environment.
• Yields: Expected to settle at 5.00% in the short term.
• Deal Volumes: Uncharacteristically low in Q4 at £50m, raising questions about pricing strategy in this subsector.

Shopping Centres

• Performance: A buoyant start in the first half of the year, with prime yields coming in at 7.50%, followed by a slowdown in H2.
• Yields: Currently at 7.50%, but further discounting is likely as occupational instability persists.
• Debt Financing: The absence of accretive debt financing is limiting sales to < £30M and holding back leveraged Private Equity buyers.
• Bright Spot: The Outlet market has seen reasonable demand, with recent sales like Cheshire Oaks and Swindon to LaSalle at £600M / 6.00% NIY and LandSec's J32, Castleford at £55M / 8.00% NIY.

High Street

• Performance: Still attracting institutional interest, particularly in smaller opportunities in South East centres and regional cities.
• Yields: Elevated yields and low management costs make this sector appealing to Private and Prop Co investors.
• Deal Volumes: Expected to increase in 2023, with the High Street share of total retail deal volumes anticipated to rise from 14%.
• Key Transaction: Argon portfolio from Shell Pension Fund floated at £68M / 8.60% NIY.

Key Market Dynamics

• 2022 as a Game of Two Halves:
  • H1 2022: Strong appetite led to £3.58BN in deal volumes, up 11% from the same period in 2021.
  • H2 2022: Economic headwinds suppressed deal volumes to £2.75BN, a 33% decline from H2 2021.
• Macro Factors:
  • Government support unwinding, rising energy costs, and the Ukraine war contributed to the cooling of the market.
  • Base rate increases and rising Gilt yields impacted debt costs, leading to pricing softening.
• Mini Budget Impact:
  • The Truss Government's Mini Budget caused a significant rebasement of rents and values, with no value recovery.
• Occupier Challenges:
  • "Consumer squeeze" is affecting retail sectors, but resilience has been observed in Q4.
  • Occupational uncertainty is expected to continue, particularly in Leisure and pure-play online retailers.
• Online Retailers:
  • Made.com was acquired by Next for £3.4M, a sharp decline from its £775M flotation.
  • Profit warnings from Boohoo, Asos, AO.com, and Ocado indicate potential distress in this sector.

Knight Frank Outlook

• Early 2023: The after-effects of Q4 will likely be felt into the early New Year, with fears of a prolonged recession influencing investor sentiment.
• Investment Focus: Discerning investors will focus on omni-channel-enabled or true convenience/experiential assets.
• Stabilisation:
  • Retail Warehousing and Foodstores are expected to stabilise faster, with yields potentially reducing by 50bps by Q1 2023.
  • Shopping Centres may see further discounting, as NOI pressures and occupational instability continue.
• Debt Availability: Improved debt availability for better quality assets in the short to medium term.

REIT Share Price Tracker (H2 2022)

Knight Frank Deals

A selection of recent transactions, including:

• The High Parade, Streatham (Freehold, £7,400,000, 8.66% NIY, for Criterion Capital)
• 86-92 George St, Edinburgh (Freehold, £15,250,000, 6.21% NIY, for CBRE Investment Management)
• 59/61 & 63/65 Northumberland Street, Newcastle (Freehold, £2,800,000, 6.44% NIY, for NFU Mutual)
• Sainsbury's, Park Hill Road, Garstang (Freehold, £10,000,000, 4.50% NIY, for CBRE Investment Management)
• Broad Street Mall, Reading (Freehold, £57,500,000, 7.10% NIY, for Moorgarth Group)
• Deepdale, Preston (50% Freehold, £30,300,000, 9.00% NIY, for Melford Capital Partners)
• e Mall, Blackburn (Leasehold, £40,000,000, 11.50% NIY, for Capital & Regional)
• Clifton Moor Retail Park, York (Freehold, £32,600,000, 7.61% NIY, for Melford Capital Partners)
• Victoria Quarter, Leeds (Freehold, £30,300,000, 9.00% NIY, for Redical / Rivington Hark)

Contacts

• Charlie Barke: charlie.barke@knightfrank.com
• Dominic Walton: dominic.walton@knightfrank.com
• Alastair Bird: alastair.bird@knightfrank.com
• David Willis: david.willis@knightfrank.com
• Will Lund: will.lund@knightfrank.com
• Daniel Serfontein: daniel.serfontein@knightfrank.com
• Sam Waterworth: sam.waterworth@knightfrank.com
• Freddie MacColl: freddie.maccoll@knightfrank.com
• Lizzie Mason-Jones: lizzie.mason-jones@knightfrank.com
• Ross Needham: ross.needham@knightfrank.com
• Josh Roberts: josh.roberts@knightfrank.com
• Emily McInnes: emily.mcinnes@knightfrank.com
• James Mohsen: james.mohsen@knightfrank.com
• Marina Campbell: marina.campbell@knightfrank.com
• Alex Jimenez: alex.jimenez@knightfrank.com

Conclusion

The retail market in 2022 was marked by dramatic swings in investor sentiment and deal activity, with Retail Warehousing emerging as the strongest performer. Shopping Centres and Foodstores faced challenges due to economic headwinds and occupational instability, while the High Street remained a preferred asset class for Private and Prop Co investors. The outlet market showed resilience and demand, and Knight Frank remains a key player in retail investment across all subsectors.