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A positive outlook for out-of-town retail with record rents set for drive thru/to restaurants

Despite the ongoing challenges of the High Street, there continues to be a positive outlook for out-of-town retail, with record rents being set for drive thru/to units, according to SHW’s High Street & Out of Town Retail Focus Q1 2024.

Richard Pyne, Partner and Head of Retail Agency at SHW, says: “On the High Street, improving rents continue to be a struggle, but demand within the South East remains good, with many retailers/operators using current market conditions to their advantage. As a result, prime and secondary rents have remained broadly level, and we expect this to continue in 2024.

 

“Retailers are continuing to evolve their businesses, and some investors are beginning to come back in to the town-centre retail fold. Local councils need to continue their work with retailers to ensure the High Street remains viable and vibrant, together with diversification and intensification to ensure footfall remains and increases.”

 

In the out-ot-town market, early feedback on retail trade over Christmas 2023 is mixed. There have been some positive reports from the food retailers and variety retailers, such as Next, but although the data from the banking sector suggests an increased volume of transactions, the spend per transaction was lower than previous years largely due to early discounting by retailers.

 

Jeremy Good, Director of SHW for Out of Town Retail, says: “The last 12 months have seen challenges for the sector, but at the end of the year there were signs of an easing of the economic pressures on consumers, although the emerging crisis in the Red Sea may have an impact on retailers’ supply chains during 2024.”

 

Against this backdrop, the Out-of-Town Retail and Leisure market, nationally, maintained its position as the most buoyant retail sector. Vacancy rates continued to fall, leaving few opportunities for acquisitive retailers. Jeremy adds: “The failure of Wilko released some units, but many were acquired direct from the administrator, limiting landlords’ opportunities to prove market rents by re-letting.

 

“This dearth of transactions is beginning to have an effect on asset performance as it is increasingly difficult to prove a retail park’s true rental value. We have seen a few situations where retailers have chosen not to renew but the trend has been for most to protect their existing retail park portfolios at renewal.”

 

The drive-thru and coffee shop operators remain very active with high levels of competition continuing to push rents upwards on acquisitions. Construction costs for new units have increased significantly, but the strength of demand is leading to increased rents, with a number of deals being agreed at over £80 per sq ft in several locations across the country.

 

Jeremy concludes: “The investment sector continues to consider retail parks as the most attractive retail asset class. And although yields softened in 2023 and little stock has come to the market, this shortage of stock, coupled with unsatisfied demand for the sector, will lead to a reassessment of values and new opportunities coming to the market in 2024.”

 

To read more and to see the latest retail rental values, the SHW High Street & Out of Town Retail Focus Q1 2024 is available upon request.

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