It would be easy to think that the explosive growth of online shopping in the last decade or so has heralded the death of bricks and mortar shops, but the truth is rarely that simple. 
In fact, some of the best current opportunities in physical retail property have their roots in how digitalisation has revolutionised our shopping habits.
One of these opportunities is currently in retail warehousing across the UK and we believe that now it is the right time to invest in the sector for many reasons.
First, there is a lack of supply. The pipeline of new retail warehouse development is being restricted by the planning authorities looking to protect town centres – which have taken the brunt of fallout from the rise of internet shopping.
Performance of Ediston Property Investment Company vs sector since launch
Source: FE Analytics
Second, retailers and distributors have adapted their approach, and retail parks offer a flexible sales platform which can assist with retailers’ online sales strategies via click-and-collect, last-mile delivery and storage and distribution.
Research from GlobalData has suggested that click-and-collect growth will outstrip online retail growth. They predict that click-and-collect sales are set to rise by 55.6 per cent over the next five years to reach £9.6bn in 2022. This all plays to the value of out of town retail parks, as retailers strive to get product to the customer as quickly, efficiently and securely as possible.
Therefore, it is perhaps unsurprising that vacancy rates are low (currently 5.1 per cent compared to 10 per cent in 2013), and that we see retail parks as offering good prospects for rental growth and yield compression.
Accessing this is not as simple as simply signing a few contracts and waiting for the rent cheques to roll in. Value needs to be extracted and this requires effort by the asset manager.
Not all retail parks are as attractive as each other. They need to be well-located and prominent, served by good local amenities. It is important that these assets can be made to work for you.
When looking at each location, it is important to identify opportunities to add value. In a manner which is analogous to active ownership in equity fund management, we are actively seeking to unlock the value in these assets to enhance income streams and improve capital value.
This can be done in many ways – and does typically require a combination of approaches.
Among the things we look for are whether the right planning consents are in place, so that we can we do what we need to do quickly. This might involve bringing in new retailers, which make the location more attractive – such as food retail, a coffee offer or a casual dining chain.
Other opportunities can come through tenant engineering, which can mean swapping lessees into units which better suit their needs.
All this requires a good understanding of retailers and the market they inhabit. There are plenty of reasons why some investors remain wary of retail – post the Brexit vote, many institutional investors moved away from this sector, which created much of the opportunity we have seen of late.
Overall, we have a positive 12-month view on retail parks and believe that they offer a good value opportunity when compared to other sectors of the property market, such as industrial and logistics assets, where yields have been reduced as a result of stiff pricing competition.
Relative to these industrial yields, retail park pricing looks attractive. The higher yields on offer, the prospect of yield compression and the good income streams have resulted in more interest in the sector. It is anticipated this demand will increase over the next 12 months, which could result in retail warehouse yields reducing.
Calum Bruce is a director at Ediston Property Investment Company. The views expressed above are his own and should not be taken as investment advice.