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Strong Returns Forecast for Retail Park Investment

03 July 2018 Written by Wilford Smith Category: Commercial Conveyancing

According to the most recent Investment Property Forum UK Consensus Forecasts report, retail parks are expected to offer substantial returns for investors in upcoming years. The report, which collates the views of 26 of the commercial industry's most prominent fund managers and advisors, predicts that the retail park sector will outperform all other traditional commercial property subsectors in 2020, 2021 and 2022.

These predictions are supported by recent activity in the commercial property market, with property investment firm Orchard Street Investment Management investing £63 million in acquiring Slough Retail Park in May. Furthermore, in early June, M & G Real Estate bought a 50% stake in Edinburgh's Fort Kinnaird retail park – one of the largest retail parks in the UK – for £167.25 million. These investments are seen to reflect a widely held confidence by leading investment firms in the out of town retail sector.

The cost of acquiring property in the retail park sector is thought to be a driving force behind this recent trend, with retail parks seen to represent good value relative to other sectors. Negative publicity affecting retail parks in recent years means that the yields on offer have increased. While it is expected that this negative publicity may affect short-term investor demand, retail parks are viewed as having substantial ‘rebound' potential in the longer term.

Predicting the effect of online shopping

While much has been made of the negative impact of online shopping on the retail park sector, the growth in e-commerce is seen to have offered benefits as well, with these premises being particularly well suited to ‘click and collect' orders. Regarding retail market share, online shopping is seen to have had less impact on store-based shopping than was previously expected. Current figures show that 84% of retail transactions happen in stores, with 89% of purchases touching the store in some way. When predictions were sought a few years ago as to how the use of online shopping would develop in the UK, many experts predicted that this sector would grow to represent 40-50% of total sales. This has not been the case, and as such the outlook for retail park-based stores is widely seen to be positive.

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