Commercial property: Positive outlook for Scottish retail parks

Comment: The sector offers the ideal mix to tempt investors

The retail park at Straiton. Picture: Scott Louden
The retail park at Straiton. Picture: Scott Louden

A wet summer tends to be bad for consumer spending. But it’s turned out to be good news for a particular kind of shopping: retail parks.

Figures from retail intelligence firm, Springboard, from this summer show a clean sweep of annual increases for footfall at retail parks, from 1.06 per cent during the week beginning 3 July, to 2.61 per cent in the week of 31 July.

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The picture for retail parks in 2017 has been almost entirely positive, after a few blips earlier in the year.

While the number of shoppers at most other destinations appears to be in perpetual decline, retail parks are heading the other way – and for good reasons.

They provide convenience: retail parks tend to offer accessible parking and involve less window shopping.

They also tend to be ideal for click-and-collect services – think Halfords – which has seen them fare much better than the high street against the growing preference for online shopping.

Their popularity with shoppers is reflected in the property world too.

In Scotland, we’ve seen a number of retail parks change hands recently. Among them were parks in Linlithgow and Livingston, both sold to private buyers.

Another two significant retail parks are under offer in Scotland – with a total value of in excess of £100 million – while Columbia Threadneedle Investments has just bought Gala Water Retail Park in Galashiels.

There hasn’t always been this level of exuberance for these assets among investors, though.

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After the crash of 2008, there was consolidation among the businesses they tended to attract, and, as a direct consequence, there was a real lack of tenant demand.

The general downturn in retail exacerbated the situation, with vacancy rates hitting 11.8 per cent in 2009.

Many were nervous about the sector’s prospects and concerned that rental levels were unsustainable.

However, a new generation of parks is now springing up, populated by a new type of tenant.

Across the country the names are likely to be similar: a B&M or a Home Bargains, an Aldi or a Lidl and other operators such as M&S Simply Food, Pets at Home and Iceland’s Food Warehouse are looking to increase their store numbers in Scotland.

Not only are these companies ubiquitous on retail parks, but their leases share common traits.

They tend to offer long lease terms to good covenants, solid rental growth via some form of index-linked review clause, and the yields are attractive in comparison to other sectors of the market.

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Another advantage is the lower upkeep costs required for the buildings, compared to property assets such as offices and high street retail.

The rise of these businesses seems inexorable. Lidl announced plans for 60 new shops across the UK earlier this year, B&M upped its target number of stores from 850 to 950, and M&S’s food business continues to boom.

This demand for space will see more of this generation of retail park coming into being, albeit planning restrictions will mean it will never be a flood.

We expect this area of the market to increase in popularity among investors. At a time when income returns are key, there aren’t many other sectors that offer the same combination of secure income and strong tenants as the yields offered by retail warehousing.

Alasdair Steele is head of

Scotland commercial,

Knight Frank