High Street Retail: Focus on High Street assets with re-based rents
The nation’s High Streets have en masse received plenty of negative commentary. However, it is important to distinguish between “strong” and “weak” High Streets when analysing the sector.
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Occupier markets in High Streets of the top 50-75 towns generally remain healthy with limited vacancies, and these prime streets continue to attract the highest footfall being focal points where people live, work and shop.
High Streets are also generally open 24 hours a day and attract a wide range of retail uses including all A Classes (shops, banks, cafes), B1 (offices), C1-C4 (residential, hotels, nursing homes) and D1-D2 (cinemas, gyms, health centres).
Existing or future tenants should be attracted to the lower occupational costs of High Streets when compared to their Shopping Centre counterparts, where service charges significantly increase overall property costs.
Despite the perception that all retail landlords are at the mercy of their tenants, High Street owners do not have the same ‘gun to the head’ scenario that some multi-let landlords are facing. Owners have the benefit of being able to select a tenant that is willing to pay the highest rental rate, without the same level of concern over the tenant mix of the asset.
Investors should focus on High Street assets that have had their rents re-based over the past 12-24 months to ensure that they are at an affordable level for the tenant to be profitable. These re-based rents should provide sufficient protection on the downside to landlords until the currently fragile occupier market improves.
The High Street sector provides a strong liquidity story due to the range of lot sizes available, appealing to a diverse range of buyers including; funds, property companies who may envisage potential alternative use upside (office or residential) or private buyers seeking wealth preservation.
Whilst many institutional owners have proceeded to sell down their High Street assets in order to raise capital and reduce their portfolio weightings towards retail, we envisage that investors will look to re-stock their portfolios with high quality High Street assets in future years.
