At the same time, retail sales have been picking up, with this column recently touching on the improving outlook for British consumers.
Taken together, this should mean that hard-pressed retail assets – unfancied since the credit crisis – may finally be in line for a boom.
The bull case
The renewed confidence in the property sector is not just confined to London, and recently this was underlined by Pimco, the world’s biggest bond manager, when it struck a deal with New River Retail to take on five secondary UK shopping sites.
The joint venture marked the fund manager’s first foray into the world of bricks and mortar, and in IPD’s September numbers there were signs of fresh appetite for the retail sector in the form of new investments.
Moreover, Brits are no longer feeling that their incomes are under strain, consumer credit is growing, and according to the CBI the high street recovery is still ongoing even if retail sales growth stalled during October.
Bears bite back
That said, there are still signs of fragility within the retail space and enthusiasm for retail property is nowhere near as high as investors’ appetite for assets in other sectors.
Phil Nell, manager of the Aviva Investors Property Trust, said that while the momentum behind the recovery in UK real estate will continue to build through to the year-end, his hopes were not as high for the retail space.
“The retail sector still faces depressed cyclical occupier demand at a time of significant structural change,” he said, arguing that shops still face stiff competition from their online rivals, and that the impact of this was weighing on retail property investments.
In addition, Nell said that while investor sentiment had “markedly” improved, there were still significant sub-sector and asset variations.
Capital Economics’ Roger Bootle and Ed Stansfield also have some reservations.
Reacting to the IPD data for September the pair said that the monthly 0.1% gain in all-property rental values was “hardly a major shift”, even if was enough to edge the annual growth rate into positive territory.
Bootle and Stansfield said last month’s figures marked a milestone in that it was the first time in two years that the growth rate had moved into the black, but they cautioned that this had been driven by central London and office rents continued outperformance, while the retail sector was still “seeing falls”.
Moreover, rather than retail sites being the next unloved play to back, Aviva Investors’ Nell said he is confident in the continued recovery story playing out in strong regional markets. As a result he has a material weighting in his Property Trust to quality assets in the South East.
Elsewhere, Nell said that within the office space financial services was looking interesting. “Financial services have been impacted by the pronounced pick-up in economic sentiment seen over the summer months. Confidence is rising across the sector as are hiring intentions. These trends bode well for occupier demand, especially in central London, where leasing companies have turned considerably more positive of late,” he explained.
