Park life 3: the investor view

Over the last few weeks, Pragma has been reviewing the opportunity presented by retail parks, through the eyes of both the consumer and the occupier.

To complete the series, this week we look at the format through the eyes of the investor.

Strength of opportunity

As discussed previously, we regard the typical characteristics of a retail park (accessibility, wider trading hours, free parking, standardised formats, lower occupancy costs, ease of servicing) as increasingly relevant for both consumer and occupiers. This potentially provides a more predictable level of consumer demand and occupier performance. It also provides stronger potential for sustainability of rents and security of investment than other forms of retail, where the impact of fast-changing consumer and occupier trends may be more variable.

RDI REIT's sale of their UK retail park portfolio to M7 Real Estate for a net initial of 7.5% highlights the opportunities to place funds and exit due to consistent investor interest.

Diversified uses

Though fashion and casual dining are increasingly rare on retail parks, the relevance of retail parks as an investment remains, in part due to the flexibility of format. Whether it be broadening use type (our last Pragmatist on retail parks highlighted the opening of Ninja Warrior UK at Meadowhall), trialling new formats or creating improved environments, retail parks offer the accessibility and flexibility of space to develop and evolve, providing the opportunity to secure a return on investment.

Alternative uses

The typical retail park – level topography with relatively inexpensive buildings in place – make them an attractive proposition for redevelopment. As the proportion of market share attributed to online continues to grow, edge of city/town centre sites with strong road connectivity provide significant appeal for last mile logistic hubs. Whilst the rents paid by logistics currently only make such conversions suitable in areas where there is particularly high demand (typically London and the South East), there is broader opportunity for conversion of retail park space to student housing or residential uses and discussion of the potential intensification of use seen globally, which could add office space, education and health to the mix.

Even where an investor may not proactively wish to pursue conversion, the potential to do so offers the opportunity to peg retail rents so that they do not threaten to drop beyond a certain level.  Whilst price, location and the proactivity of the local authority will dictate the potential for retail park investment, as a format we see great potential.

Andrew McVicker