On the outskirts of every bustling town and city lies the reliable, yet boring, retail park.
But, as dull as they may be, retail parks are having their moment in the sun. On Tuesday, property developer British Land said it would upgrade its full-year estimated retail value for its retail parks from between two to four per cent to between three to five per cent after demand for space at its parks showed signs of heating up.
The FTSE 250 firm said it was continuing to see “significant leasing momentum” across its circa 40 retail parks, and in the five months to the end of August leased 511,000 sq ft of space across its parks.
In the last year, the company has also signed a number of lucrative retail park deals, including five with Mike Ashley’s Frasers Group and two separate deals with Primark and B&M.
News of market momentum comes at a challenging time for commercial property firms, as high interest rates and a decline of activity in the physical retail space has led to the value of these assets being lowered, and have increasingly been viewed as unattractive.
But a spokesperson for British Land told City A.M. that retail parks are proving a popular option because they are “low maintenance” and cheaper than taking space at a traditional high street store or shopping centre.
“They’re very adaptable and the rent and business rates that they [retailers] pay compared to a shopping centre are much lower because they’re quite low maintenance,” they said.
“Rents at retail parks really came down before Covid-19, but have since rebased… and the rents are starting to rise which is why we’ve upgraded our guidance,” they added.
Retail parks also appear to be trumping rival high streets in terms of occupancy.
Retail parks are here to stay – and performance will improveRetail analyst Jonathan De Mello
Retail park vacancies fell to 8.1 per cent in the second quarter of the year, down 0.6 per cent on the previous quarter, while shop vacancies on the UK’s high streets hit 13.9 per cent in the second quarter, up one per cent on the first leg of the year, according to recent figures from the British Retail Consortium.
According to commercial real estate agent CBRE, vacancy rates at retail parks could narrow to between three and four per cent before the end of the year.
The company said that retail parks are weathering the economic storm well because they tend to focus on essential product categories, such as clothing and groceries, unlike high streets, which shoppers on a budget may steer clear of in case they are tempted by other goods.
“We believe value retailers and grocery retailers will be the key drivers of demand for retail parks as consumer spend is weighted towards essential items; Aldi, B&M, Home Bargains, The Range, and Poundland are continuing with ambitious nationwide store expansion targets,” CBRE said in a recent report.
Cost-of-living favourites Aldi and Lidl have also been ramping up their presence in retail parks, with the former opening its 1,000th UK supermarket at the Lion Retail Park in Woking earlier this month.
“For retailers, they provide modern, purpose built accommodation and a generally affluent, family oriented shopper,” Jonathan De Mello, chief of JDM Retail, told City A.M.
De Mello said retail parks now also provide a “real alternative to high streets,” with an increasing number including more food options and leisure activities.
“There is a place for both [retail parks and high streets] to co-exist in today’s retail world, though creative solutions are needed to maintain high street health in light of the growth of retail parks, to mitigate the structural vacancy we have seen following various high profile retail business failures over the past few years such as Debenhams, Arcadia and more recently Wilko,” he said.
“Retail parks are here to stay and park performance will continue to improve relative to other asset classes, as the tenant mix in such parks continues to broaden and strengthen.”