| Retail |
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£9.4 billion invested |
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£9.9 billion including completed value of committed developments and contracted purchases in Europe |
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83% of which is out of town |
Our retail portfolio is largely positioned in prime assets which best capture occupier demand, with 83% in out of town locations, of which more than 85% have the favourable open A1/open restricted planning uses. These allow us to align ourselves with our customers and deliver the space they require, also enabling us to offer active asset management initiatives, to generate rental growth and increase value. For example, there is increasing retailer requirement in out of town for smaller units where we have responded by changing unit sizes, permitting installation of mezzanines and providing imaginative new formats for customer services, including new catering outlets. The results are parks attracting a greater variety of retailers that generate increased footfall, shopper dwell times and spend – factors which in turn drive up turnover and so affordable rents. We expect to continue to deliver these improvements and see a positive outlook for continued rental growth in this chosen sub-sector.
These value added strengths are building upon the strong defensive qualities of our prime portfolio: high occupancy of 99%, an average lease length of 16 years and 15% reversionary income, including fixed uplifts and expiry of rent free periods. Since March 2007 we have reduced exposure to bulky goods and solus retail warehouses, and in town units, with total sales of £1.2 billion, overall at 1.9% above valuation. Lettings of 540,000 sq ft have been concluded at our retail parks plus 136,000 sq ft at our shopping centres. Together with rent reviews over the same period these captured reversions and will deliver a £14 million increase to the retail rent roll. In addition, we have 2.4 million sq ft of retail developments in the UK and in Spain, progressing well.
The difficulties in the financial markets and the overall increase in the cost of borrowing for debt buyers have effectively produced a “no bid” position in the investment market, except for ‘special’ purchasers. As a result, despite significant stock availability, there are very few transactions and yields have moved out, and are continuing to do so. The net equivalent yield on our retail portfolio overall has increased over the six months to September by 20bps (4.4%) and we note that CBRE prime yields for open A1 shopping parks have moved out from 4.0% in September to 4.5% in November. We have also seen evidence of slowing rental growth, particularly on second tier retail warehouse parks. Prime assets, such as our open A1 retail parks, Meadowhall regional shopping centre and the best superstores, although not immune from these market factors, are better placed; they have higher growth prospects due to strong trading, accordingly increased retailer demand, which against restricted supply results in improving rents. Going forward, although it is likely that the market will see more outward yield shift, these retail assets should benefit from greater differentiation in yield levels versus more secondary investments to reflect their relative prospects.
The occupational market, which will continue to be a key influence in setting values, has a relatively positive outlook. Despite some disappointing figures from a handful of retailers, the general retail market is proving more resilient than most forecasts – and commentators are beginning to note this evidence. Retail sales data (from ONS) shows an increase in value of 3.8% for the three months to September 2007 over the three months to September 2006, while forecasts (from Verdict) indicate growth at 2.9% per annum over the next five years.
The UK food retail sub-sector remains robust, with major operators reporting healthy results and sales growth. These operators are continuing to require larger sales areas, as well as trialling new non-food formats, while supply remains highly restricted so maintaining competition for any available sites. The open A1 retail schemes are also seeing continued strong occupier demand, with the trend for high street retailers to extend their operations or explore new formats in out of town positions. The bulky goods occupier market is more subdued but there are pockets of demand from furniture and home retailers who are expanding or exploring new concept stores. However, there is greater supply of these parks
