'Defensive' retail warehouses attracting investors

Opportunistic investors are returning to the prime retail warehousing sector, enticed by yield levels which now balance the potential risks inherent in UK retail with the rewards of moving ahead of the wider market, according to new analysis from Savills.

'The investors currently buying prime retail warehouses appear to have a sound approach, and are not merely being driven by the prospect of picking up a bargain,' said James Gulliford, joint head of UK investment at Savills.

Yields on open A1 retail warehouses currently stand at 6%, having risen from 5% a year ago and 175 basis points since 2015. However, increasing demand signalled by a spate of recent deals in Bath, Basingstoke and Brighton indicate that yields on high quality stock may move inwards in the future, Savills says in its latest Market in Minutes report.

'We believe retail warehousing is the segment of the UK retail sector most defensive against the structural change of omni-channel retailing, largely being home to retailers selling products that customers want to inspect before buying, and are therefore unlikely to see the same issues emerge as high street retail,' added Gulliford.

Mat Oakley, head of UK and European commercial research at Savills, said: 'The last nine months have seen the return of the bargain hunter to the UK commercial property market, driven both by the rise in yields and the prospects of further Brexit-related price or currency changes.

'Retail warehouses remain a defensive play, as do industrial assets, where the average prime yield has now been lower than that for office or retail for a eleventh consecutive month.'


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