Sector distribution 2013 to 2016
While the proportion of Retail investments remained steady at around 67% of the whole, the value sold in the sector showed a 32% increase over the 2015 result up to £406m, with the volume also showing a 22% increase, up to 719 lots. This also represents an increase in the average lot size for the Retail sector, up by 8% to £564,000.
The Industrials sector, as anticipated, improved significantly, increasing in sales value by 90%, to £51m, also increasing in average lot size from £641,000, to £1m. Leisure investments also showed a healthy increase, up 31% in terms of sales value to £54m.
Regional distribution 2013 to 2016
The South East and London, for the third year running, accounted for just under 50% of the total value in 2016 (£293m), an increase in sales of 35%.
Supply in the Greater London area continues to be tight, despite exceptional demand, with many vendors adopting a hold strategy.
2016 saw improved demand in the North West, North East and West Midlands, and sales across the three regions showed a marked improvement to £180m, 30% of the total, an increase from a more modest 23% in 2015.
Purchasers continue to search for better returns, with the consequence that well-let assets in the better regional centres look increasingly appealing.
Average lot sizes in the South East continued to improve, rising to £874,000 from a 4-year average of £700,000.
Yield analysis 2007 to 2016
Analysing single-let retail assets, sold “under the hammer” (a sample of over £1.5billion in the last decade), we categorise the properties into A-grade and B-grade investments, depending on the quality of the tenant, the length of income and the location.
The continuing demand for A-grade investments has sustained yields between 5.5% and 6.5% over the whole decade – with the exception of the period around the financial shocks in late 2008. The yield stability of the better quality investments is clear, particularly when viewed against the more risky B-grade range, which shows greater volatility, and therefore a spread of 7% to almost 10%.
With investors continuing to receive nil, or even negative returns on cash, the appeal of income-producing real estate has long been recognised and is becoming ever clearer to a widening pool of investors. While interest rates are predicted to increase in the mid-term, the increases are unlikely to be large enough to draw savers away from the sector. The competition for A-grade investments looks likely to continue for the foreseeable future.