The High Street retail investment market has undergone a seismic shift in the last 12-24 months. The enforced closure of ‘non-essential’ shops due to the wider COVID 19 lock-downs, has meant most retailers have experienced interrupted trade and significant losses. Questions have subsequently been raised as to the necessity of how consumers may behave once society is back to normal. Has a shift to increased online retailing been brought forward or will there be a correction?
In 2020, the amount spent in online retail sales increased by 46.1% when compared with 2019 the largest annual increase since 2008. Whilst expected in the circumstances the trend is still on an upward trajectory with internet sales as a percentage of total retail sales 21.6% in November 2019 and 25.9% in September 2021. We are however of the firm belief that retailers continue to see that traditional shops still have a place in their post-COVID omnichannel strategies and this is perhaps also the opinion of active investors.
Assisted by the level of competition and sharp yields in other property sub-sectors, we have experienced an uptick in activity as well as the pool of investors deploying capital in the High Street retail investment market over the last 12 months. These investors are primarily seeking prime assets in core High Street locations let to strong covenants where they are able to acquire inherently good but over-rented assets at higher yields than other sectors. In common with the Shopping Centre market there is definitely more counter-cyclical investor interest in this subsector, attracted not just by the high yield it offers against its own history, but also the comparative pricing between High Street and other property sub sectors. The historic best in class High Streets is achieving yields around 8%+ where historically these were trading nearer 5% NIY or better. Q3 saw £478m transacted over 91 deals, bringing the total for 2021 to £1.7bn. While this is 12% higher than the volume that was sold in 2020, it is still 29% below the same period in 2019.
We believe there is only going to be an increase in the number of active investors as well as capital deployed in the High Street in 2022. As a result, we may see the beginnings of some downward pressure on prime shop yields, not just because of the yield differential, but also because some investors are beginning to judge that the occupational risks may not be as significant as they had expected earlier in 2021.
To discuss retail investment further speak to Ed Smith, David Freeman and Patrick Over on our investment team. To see all current investment properties, visit our Investment pages
Read the full Green & Partners 2021 review and 2022 outlook