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Andrew Wilkinson, Partner of Investment at Sanderson Weatherall, comments on current investment trends in the retail market.

“The market is currently being driven by longer lease income, where there is a covenant of recognisable strength. This ensures a continuous, stable level of income, and sectors particularly attractive to buyers are bookmakers, banks and big-name brands.
There is increasing demand for leases of 15 years plus and there is actually a short supply of this type of stock on the market, resulting in prices almost returning to what they were before the downturn in some cases.
 
What we are getting is a two-tier effect on the market. At one end, the market is starved of longer lease stock and at the other, short term low-income retail properties, where the covenant is questionable, or where there are geographical affecting factors are less readily sold and at lower prices to reflect the risk attached.
 
This imbalance is typical of a market that has seen a drastic downturn but hopefully is beginning to slowly stabilise itself.
Within this two-tier market, we are seeing that there is still room for movement and potential for opportunity in the middle of these extremes, but here flexibility is crucial.
 
Lot sizes driving the retail property market are generally within the £½ million to £5 million bracket and don’t tend to require bank funding.
 
The banks still seem reserved and probably rightly so, to wider lending as was anticipated following Government intervention and the market is expected to be sluggish for some time to come.
Spending in the immediate future is likely to mainly come from equity and here, interest from private investors has continued to increase.
 
There has also been some frustration caused by the retraction of stock – usually at the last minute!
In many instances, stock sales have been driven by the need to raise cash, especially if there is a pressure for redemptions by the funds.
 
Having realised sufficient return on sales, some parties have been pulling remaining stock, leading to aborted negotiations in some cases.
 
I think some property owners have done this as a market-testing exercise; if they don’t get what they want from it, they will withdraw it.  These are reactions to a market that in the last eighteen months has been as steady as Jordan’s love life. Joking aside, we will see less of this ‘panic selling’ as conditions improve.
Capital and covenant strength and length of lease will be the key to ensuring the market stabilises as soon as possible, as it is these properties that are in most demand.”
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