When one looks at the tale of the UK retail investment market in 2018 it centres around the numerous CVAs that have been headline news putting doubt in investors’ minds regarding this sector. Poundworld, New Look, Toys R Us and Maplin are a selection of renowned retailers occupying hundreds of units across the UK that have caused pain to Landlords in the last 12 months generating understandable concern around this sector.
With such negative headlines it would be easy to group all types of retail together under this “umbrella of uncertainty” however this would be misguided. Neighbourhood and convenience shopping offers advantages investors should not ignore.
Importantly, it is a sector that has always been resilient. In 2014 Allsop sold Project Minard for The Local Shopping REIT. The portfolio was formed of 234 local shopping assets in urban and suburban centres across the UK. One statistic that stood out when marketing was that through LSR’s ownership of the portfolio – which was established in 2005 and subsequently held throughout the recession, was that the vacancy rate remained robust at circa 12% throughout the 9 year period. There was no volatility in regards to vacancy post global credit crunch that one might have expected.
In this era of e-commerce all major supermarkets offer online shopping services alongside the emergence of online supermarkets such as Ocado and Amazon Fresh. Despite this, the food and grocery sector is forecast to see just 9% of sales online by 2022 with the health and beauty sector online share projected to be at just 12%. This is comparatively low when accounting for the overall online share of UK retailing which is forecast to be at 18.5%. It is refreshingly clear that there is still something to be said about picking one’s own fruit and veg from a shop.
Local community shopping centres and neighbourhood retail tend to focus on goods and services that are not readily available or possible online and therefore are more resistant against moves towards online retailing. To put it bluntly, it is not possible to have a haircut, get a tattoo, undertake dental surgery, get a spray tan, post a letter or meet for a coffee online. The retailers concerned by the much maligned CVAs are rarely found in this category of retail investment.
The independent retailers that often make up these neighbourhood parades may not offer the blue chip covenant that investors would ideally like to rely upon but in the majority of these cases the businesses represent their owners’ livelihoods – there is a desperation to be successful and these independents are often good and adaptable at keeping their costs down to ensure their business is successful and rent duly paid.
In fact there has been a growing trend of online shopping and neighbourhood retail working together with online retailers offering click and collect services at local centres, giving shoppers another reason to visit. Yellow Amazon lockers have become a common feature at neighbourhood centres and “last mile” delivery is often problematic with customers not being home to collect and high delivery costs. There is a growing trend with customers preferring to collect locally and, at the same time, as buying their everyday goods.
In 2016 Allsop sold The Arcade in Bedford to Padmanor Investments and having spoken subsequently with the purchaser a simple asset management initiative of introducing Amazon lockers has noticeably helped footfall. Since introducing the lockers the number of “door openings” has been steadily increased from 115 in May 2017 to 313 this August which has had a positive knock on effect to the trade of independent businesses within the arcade.
Neighbourhood retail opportunities can often provide asset management benefits with many centres being located on large sites that offer redevelopment potential alongside other opportunities such as converting ancillary upper floors into residential and introducing yellow amazon lockers…
Our recent sales of the Coronation Square Shopping Centre, Cheltenham and The Forestdale Shopping Centre, Selsdon, Croydon have proved extremely popular. Investor demand was strong and pricing ended way above original expectations purely based on the above reasons.
As with any investment, location is fundamental, and a strong residential catchment area is ideal. If these two factors are in place and the tenant mix is right, convenience retail can be an astute investment for those wanting a balanced portfolio and exposure to the retail sector.
I give you the case for convenience
Allsop are currently marketing Birches Bridge Shopping Centre, Wolverhampton Road, Codsall – a busy neighbourhood parade anchored by a Co-op convenience store and Costa coffee shop. Offers are sought in excess of £5,000,000 reflecting a net initial yield of 8.50%. Please click here for further information.