Has the retail property market peaked?

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According to David Thomas, writing in the Financial Times in November 2017, the commercial retail property market in the UK may have reached its zenith.

Retail property values in many UK regions are experiencing only small increases. Retailers are seeing falling income and profits which makes them reluctant to pay high rents for retail premises.

After years of rental growth over the last few years, retail rents have fallen by 2.25% since 2010.

Some financial analysts say that the commercial property market could go through a flat period in the near future with small rent rises and little capital growth. Brexit has contributed to the feeling of uncertainty, with investors not sure how it will affect the retail sector.

Not all retail investments are having a difficult time, though; real estate investment trust Hammerson has experienced a 3.1% rental growth in its retail premises. It has many investments in countries outside of the UK, so not all this rental growth is from their UK investments.

Large cities are generally faring better than smaller towns because the major retailers do not always want a presence in the latter.

Thomas writes that commercial mortgages are still available, as are low interest rates to finance retail property purchases. Many investors are diversifying their commercial property portfolios to include office space, warehouse buildings, and industrial units as well as retail properties.

Thanks to increased online sales, there is a high demand for warehouse space. Many online retailers also have retail stores and are unlikely to become online-only businesses.

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