Commentary by Richard Auterac on Q2 2014 Acuitus/IPD RPAI:
During the tail-end of the recession there were a number of false dawns for the retail property sector but the message from the auction rooms is that we are now moving into a period of stabilisation and growth in selected locations.
The auction room is the true measure of what is happening in retail property. While headlines may be grabbed by a stake in Bluewater shopping centre selling for £656m, it is the flow of every day retail assets through auctions which give a more accurate of picture of what is happening on High Streets throughout the UK.
It was because of this relationship between retail property and the auction room that IPD and Acuitus developed the Retail Property Auction Index (RPAI). It measures the capital value change of retail properties sold in the UK at auction. Drawing on data collected since March 2003, the sample on which the index is based is a subset of the EIG database and encompasses the results of the major commercial auction houses.
The latest index findings for the second quarter of this year make interesting reading.
The RPAI has registered its third consecutive quarter of growth, and it is clear that the High Street property market has now definitely risen from the low point of the last property cycle that was reached last year.
The index now stands at 98.20 – which shows a year-on-year increase of 12.9%. This is the highest annual percentage increase since the first quarter of the boom market in 2007.
Increased confidence of retailers and consumers has led to a growing belief among property investors that ‘the death of the High Street has been greatly exaggerated.
Retail property continues to be the engine of the auction room. The improving economic situation and consumer confidence is being demonstrated in the sale room. In the May round of auctions, the average yield achieved on the sale of retail investments sharpened to its lowest level since October 2011.
The cPad (Commercial Property Auction Data) market report for May showed that the Average Retail yield experienced strong downward pressure and moved downwards by 70bp to 8.2%. When weighted for value, the downward yield shift was 140bp. The more positive attitude of investors can clearly be seen.
The platform for this change of heart continues to be the rebasing of rents to levels which are viable to retailers in the new economic environment and account for the impact of growing online retailing and the effect it has had on shopping behaviour. There is a new realism in the market and investors can see a way forward.
The recovery is not universal and is currently confined to the wealthier towns but it is clear that this revival of fortunes will continue to spread.
Anecdotally, the sentiment shift was further borne out by the most recent round of auctions earlier this month. At the latest Acuitus sale, we saw retail property investments commanding sharper yields.
This phenomenon was not exclusively confined to London but the capital is still the outperformer for the present. So far in 2014, IPD data shows that national values in the retail sector have gained 1.1% while London standard retail units have gained 5.6%. The two-speed market remains very much in force across the British retail sector.
The recovery in the sector is building from a low base and is distributed unevenly both regionally and across the retail hierarchy. Investor demand is similarly focused on the strongest retail locations so it is a mistake to think that because there is improved confidence and performance in some areas then this can be extrapolated to higher prices across the board.
Ultimately, it is the shopper who puts money in the tills and gives retailers the optimism to trade and landlords the courage to ask for higher rents.
In that context, the most important statistic is perhaps that consumer confidence has steadily improved over the last six months and is now at levels close to those recorded prior to the global financial crisis.
The Retail Property Auction Index Report for Q2 2014 can be downloaded here
