Retail made up 70% of the sales in our Commercial Auctions throughout 2020, which has been static over the last three years. Off £440m of total sales in 2020 this is a sizable proportion of lots which makes us qualified to discuss the opportunities seen in ‘big retail’ at auction.
Firstly, let’s define what ‘big retail’ looks like from the Private Investor’s perspective. Big retail tends to be located in the primary pedestrianised or established pitch in the town centre. It is usually large in floor plate (exceeding 5,000 sq ft) and let to a national tenant for an annual rent over £100,000 p.a. and a lot size of over £1m.
With all of the negative headlines surrounding retail as an asset class, one might legitimately ask why you would ‘put all your eggs into one basket’ and buy into this hard hit asset class. As always each buyer has a very different perspective, but by looking at some recent examples we may be able to shed some light on this.
1&3 Market Square, Stoke-on-Trent, a property sold in our September 2020 auction was a multi-let island site of 59,000 sq ft. It sold for £2.55m (16.89%). This multi-let property which is anchored by TK Maxx until 2025 (paying 55% of the total rents) was producing £458,001 p.a. and with national tenants in occupation it represented a significant chunk of retail in the town centre. By its very nature the sizable income received was diversified and reduced the risk profile and the eventual sale price reflected a low underlying capital rate per sq ft (£43 psf). Double digit returns with a low underlying rate allowing flexibility to implement changes or add value before exit.
34 Queen Street, Cardiff was another large retail unit let to Greggs, a favourite of the Private Investor, until 2026 and as importantly the rent had been rebased from £150,000 to £100,000 p.a. In the future it might have redevelopment potential. This sold in May 2021 for £1.25m at 7.5% which was ahead of our average retail yield which now stands at 8.1%. This property was very well located in the centre of Cardiff and let to a solid national tenant. Fundamentally this property was well positioned within a major UK city and re-based to a proven tenant. In 2026 if the tenant decides to leave the purchaser would have benefitted from £500,000 in rent received and obtain possession of three upper floors that have development potential. The angles and yield were both there.
So the case is made for the opportunities in the market but who, you might ask, is buying this kit? In the majority of cases it is cash rich private investors. These private investors are by their nature entrepreneurial, have a balanced portfolio already and are not put off by headlines. They look past those headlines and look to fundamentals. In each of the examples shown above the angles are clear. The only remaining question is when will you buy one?