All eyes will be on the retail sector as the festive season draws ever closer, and for the canny investor now could be an excellent time to shop in the secondary retail warehouse market.
While institutional demand is still very much focussed on prime out-of-town schemes, limited supply has created a two-tier market with a strong appetite for the best assets and softening yields for secondary assets. We believe this yield softening to be only a temporary blip, meaning opportunistic investors attracted to short-term gains of secondary but still successful schemes could well become the long-term winners.
With good rental growth also forecast for the secondary retail warehouse sector over the coming years, investors prepared to look beyond the fact that annual total returns have fallen from 15 per cent in December 2014 to 9.4 per cent in August 2015 will be well placed to reap the benefits. In fact, our five-year forecast for retail warehousing returns predicts they will be stronger than most other parts of the retail sector.
In terms of trading, the combination of a recovering housing market and strong consumer confidence bodes well for the out-of-town retail sector over Christmas and New Year. House price growth has picked up again after temporarily slowing around the time of the election and this is often a good leading indicator for sales of bulky goods in particular.
Additionally, wages rose by 3.2 per cent in the year to July according to ONS data (the strongest growth since November 2008) which means shoppers effectively have more money in their pockets than they did last Christmas. This is reflected in the GfK consumer confidence indicator which has averaged +4.5 over the last six months, compared with a long-term average of -8, with a combination of these factors pointing towards a very merry Christmas for retailers and investors alike.