Secondary shopping centres and high street shops are still bearing the brunt of softening yields as the secondary slowdown continues into 2012.
Knight Frank’s inaugural secondary yield guide shows that yields for secondary shopping centres have moved out from 7.5% in September to 9% this month, and are predicted to keep drifting out as investors sentiment softens.
High street shops and “good secondary” shopping centres have moved out by 75 basis points over the quarter.
Retail warehousing and secondary distribution centres have fared well over the period, with South-East asset yields coming in five basis points.
The agent’s report, Waiting For The Tide, found that while the 2008-09 downturn was a combination of the recession and a fundamental price imbalance, this downturn is more about the external economy.
James Robert, Knight Frank’s head of research, said: “Pricing appears reasonable when benchmarked against the other asset classes, which suggests recent price falls reflect a lack of confidence in the economy and the possibility of further rent falls, not a fundamental overpricing of the market.”
The report paints a gloomy picture for holders of what it classifies as “problem properties”: vacant assets in markets that will take years to recover.
Its advice to investors who are holding this stock is to take the pain now and sell at an aggressive price or face a wait until the next market boom for a face-saving exit.
For those with better-quality secondary stock, such as those with reasonable leases in place, a “sit it out” strategy combining asset management with selected sales of poor-quality assets suggested.
