In its latest 'Think Property' report, Henderson Global Investors examines the investment case for retail property in the UK and how it might satisfy current investor preference for core product and quality income. It also analyses the top high street towns for retail investment.
The report says that UK retail certainly offers some of the most attractive leases in Europe and while the balance continues to shift in favor of the retailer, tenancy arrangements are typically more landlord friendly than they are on the continent. Excellent covenants can be found at prime retail locations and assets. Multi-let assets offer income diversification plus some scope to manage void positions through active asset management. Furthermore, the much diminished development pipeline means competition for the best income will be less fierce.
However, despite ticking many of the boxes for investors looking for solidity of income, Henderson believes that investors should take time to assess local market conditions to identify outperformers. It believes that location will be the key to medium term performance.
To this end, Henderson's property research team has been carrying out detailed local market analysis across all the retail sub-sectors. They have analyzed austerity measures, affluence, the scale of demand by the goods sector, forecast sales growth and local retailer requirements, all assessed in the context of supply. The report picks out a couple key hot spots including Oxford, Cambridge and Guildford. Although the report depicts a South East bias, it points out that it's not quite as clear cut as this with big dominant cities in the North, probably faring better that Zone A towns in the South East, of which there are copious amounts with no distinguishable offer or critical mass.
The report adds that core investors looking for super-income should target either long-let supermarkets occupying dominant positions or prime shops in high profile locations where supply is constrained. It says that secondary retail across all sub-sectors and locations will, and should, remain out of favor with investors and lenders for the medium term.
Angela Keane, Senior Research Analyst at Henderson said: "The UK retail market offers investors the chance to access some excellent covenants and long, landlord friendly leases. Identifying the right locations and assets those with favorable demand and supply characteristics should provide a solid, steady income stream and the cream of the crop may even see some real rental growth. It will all come down to location, location, location."
Source: Henderson Global Investors