Not All Retail Investments Deserve To Be On The Naughty Bench

Despite the tumultuous change sweeping through the retail sector, we had a busy end to the Q3 trading period suggesting that not all investors are running scared. However, in every instance there is a recurring theme – a desire for low risk/high quality investments attained through either undoubted tenant financial strength, long lease or sustainable location.

Perhaps unsurprisingly, the defensive nature of the grocery sector still holds attraction. We quietly sold a ground lease investment in Rochdale let to Tesco for an unexpired term of 80 years at a sub 4% yield. Whilst the potential for future rental growth might be less deserving of a low yield the longevity of the income is undeniable. Conversely, it was the growth potential associated with fixed rental increases that enabled us to sell the Aldi in Sale for a price showing a yield of 4.5% for 16 years term certain.

We were very pleased to complete the purchase of 35 Petty Cury, Cambridge for the Ludgate Estates. This prime High Street shop is leased to the “internet resilient” company of Timpsons for another 8 years, thus offering the prospect of stable income. However, it is the impressive dynamic of the local economy, founded on the global reputation of the University, that convinced our client that Cambridge has a long term sustainable position in the national retail hierarchy.

Finally, the growth of the leisure sector and the transition to convenience is driving the expansion of the drive thru coffee shops. With the backing of Coca Cola, it is widely expected that Costa is on the road to becoming a global brand. With the added benefit of 15 years term certain and guaranteed growth linked to the Retail Price Index, The District Estates were delighted to acquire Costa’s new Drive Thru at Crewe Business Park for a price showing a yield of 5%. The nature of the strategic location, adjacent to a main arterial road and a new business park, should ensure a successful trading operation.

As always, it is about stock selection to guarantee a sustainable investment. Critically, understanding the function of a property in any given location is more important than ever when attempting to determine the good from the bad.