Retail the 'worst' property investment

Tuesday, 21 February 2006 12:00

Property investors will see the poorest returns from retail property in the next two years, new research reveals.

Experian has calculated that investments in retail property will consistently underperform the rest of the sector between now and 2010, as consumer spending on the high street drops off.

But while residential property investment will return as little as 5.5 per cent a year, returns of up to 13.6 per cent will be available to people investing in office property, the market analysts predict.

"The immediate outlook for Britain's shopping streets is reasonably positive, given market conditions," said Simon Marx, head of property market analysis and forecasting at Experian.

"Returns for high street retail will still exceed ten per cent this year but, as the effects of reduced spending start to filter through into lower rental growth, returns in 2007 and 2008 could fall below six per cent. This is compared with offices and industrials, which will see returns above seven per cent.

"Our current forecasts suggest that All Property returns will grow by at least 11.8 per cent this year and by 6.7 per cent next year."

Experian highlights unprecedented highs in prices, caused by exceptional demand for all types of property, as responsible for driving returns down.

The company suggests that these higher asset values, declining yields, and a slowdown in consumer spending will combine to squeeze on retail property margins.

However, while retail property is set for a more sluggish future, offices could continue to provide opportunities for investors.

"Offices will be the strongest performing property asset over the next five years with the West End leading the way due to its diverse tenant base and international standing," Mr Marx predicted.

"Robust growth in financial and business services is also driving the occupier market recovery in other parts of London and the UK and a lack of good quality space is already forcing up prime rents in a number of markets. These factors will lead to office returns in excess of 15 per cent in some markets this year."

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