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Polarity between prime and secondary retail stock is set to continue

wantspacegotspace.co.uk - Polarity between prime and secondary retail stock is set to continue -  BNP Paribas Real EstateThe polarisation between prime and secondary retail stock is set to continue, according to BNP Paribas Real Estate, the leading property adviser. Whilst prime rents are beginning to show recovery, secondary rents have continued to fall.

Although investors still have money to spend on the high street, their appetite remains selective, with a keen focus on top tier retail destinations and super-prime assets. Investor demand continues to move away from off-prime retail space, with tertiary assets in secondary towns being likely to see the largest outward movement.

The overall retail sector continues to evolve and retailers now require less physical space compared to the past. Store size and shape is changing too in response to shifting online sales and recent retail requirements tend to be for larger stores, leaving smaller units below 2,000 sq ft currently out of favour, which has resulted in an oversupply of these units.

With vacancy rates expected to continue to rise, as retailers focus on rationalising store portfolios and administrations remain rife, it is likely that rents in some locations, particularly in some northern towns/cities will decline.

In contrast, some south eastern towns with enough critical mass (over 500,000 sq ft of retail space) will continue to see strong demand for the right unit in the right location. Outside of the south east demand is limited, apart from the major cities which continue to attract national names.

Interestingly, London’s retail property market has experienced a period of strong growth and rental values are forecasted to rise in central London. This has been driven by international investors competing for prime retail space, strong occupier demand for a finite amount of supply, along with an interest from investors buying up ‘trophy’ assets.

There has also been healthy demand from luxury retailers, who are now looking to open outlets beyond the traditional core of Old Bond Street/New Bond Street. The competition in the investment market has been fierce, with a Bond Street retail property recently sold at a sub 3% prime yield – which reflects the anticipated rental growth in the area.

Paul Griffiths of BNP Paribas Real Estate commented: “Whilst there is selective demand for distressed assets, it is primarily opportunistic investors willing to take on the higher risk in the hope of receiving elevated returns. Looking ahead, it is anticipated that prime yields are likely to remain unchanged around 4.75 to 5.00% in the best regional centres. Yields on secondary assets are expected to move out, as a result of weak investor sentiment and an increasing number of weaker assets expected to hit an already oversupplied market.”

Posted by The Editor (wantspacegotspace) on 19th January 2013 (updated 21/01/2013)

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