Commercial property: Retail parks are enduring investments

About a year ago, at the height of the first lockdown, few people might have predicted that the humble retail park would be among the “winners” – for lack of a better expression – of the pandemic.

Alasdair Steele
Alasdair Steele

But, 12 months on, some commentators have described a “renaissance” in what was once considered a dated offering.

Data from the Office for National Statistics shows retail parks were busy throughout the second lockdown and saw footfall increase strongly – the number of shoppers visiting them may even have been ahead of pre-Covid-19 levels in recent weeks, according to Springboard figures.

There are a range of factors behind the resilience of retail parks. Among them is the fact they can offer shoppers easy access by car and more space to move around.

Another differentiator has been the typical occupier mix. Whereas three years ago retail parks suffered on the back of the collapse of some anchor tenants, such as Toys R Us, during the pandemic many of the businesses that are a common feature of these sites were designated “essential” by the government.

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The growth of e-commerce – which seems likely to be sustained as the economy reopens – should continue to support footfall at retail parks as more consumers using click-and-collect locations often seen at such sites.

The likes of B&Q, Dunelm, and Next, all with a significant retail park footprint, have weathered the last year. There are also expansion plans in the works for occupiers such as B&M and Greggs, which reported its stores with drive-through facilities had been among the best performing.

Given all of that, perhaps it should be no surprise that there has been increased appetite from investors for retail park assets. In Scotland we have seen a notable number of deals concluded since the pandemic began, including the sale of units at Renfrew Road Retail Park in Paisley, Urban Logistics REIT’s purchase of a retail warehouse let to The Range in Edinburgh, and many others traded on an off-market basis.

Their attractiveness as an asset class might be best encapsulated in rent collection levels. At a time when it has been a contentious topic, collection rates have been up to an average of 75 per cent for retail parks, which is no mean feat in the current climate.

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The leases on retail parks also share some appealing traits. They tend to be agreed on a long-term basis to good covenants, with rental growth locked in, and the buildings themselves are often cheaper to maintain than other property types. The yields on offer also tend to be attractive.

However, not all retail parks are equal, and investor focus should be on assets let at sensible rents to a strong tenant line-up, with a healthy proportion of essential retailers.

As they have shown in the past, the durability of retail parks looks set to make them a keen source of investment activity for some time yet.

- Alasdair Steele is head of Scotland commercial at Knight Frank

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