Annual and 18-month history of retail property performance

Despite fears of a slow-down in consumer spending, the retail sector has proved more resilient over the past 18 months than many observers would have predicted. There has been a significant divergence of investment activity between property companies and private buyers. Private buyers – propped up by heavy borrowing – have focused on the yield gap between income return and interest rates as a performance benchmark. This trend has inevitably put the institutional investors at a disadvantage, effectively pricing them out of the market by their need to focus on income return and capital growth. Shopping centres remain attractive to investors and, with plenty of recent acquisitions made by short-term investors, there is plenty of scope for further churn as buyers seek to realise their gains. There is a reasonable chance that rental growth will outpace interest rate rises over the next couple of years. This trend would continue to underpin investment activity by ensuring that any modest rise in interest rates would be offset by a rise in incomes. Clearly, the biggest short-term threat faced by the retail market is a rapid decline in consumer spending. Some form of cooling, however, is almost inevitable and could potentially impact upon the retail property markets.