UK pricing survey: Shopping crisis hits forecasts

Shops are most likely to feature at the top of investors' sell-lists, according to the latest Real Estate Capital and Colliers International pricing survey.

Expectations for the performance of UK commercial real estate were informed, in part, by the carnage experienced on the country’s high streets in recent months. Shops were most likely to feature at the top of sell lists, according to respondents to the latest Colliers International and Real Estate Capital Investor Pricing Survey.

The data show rental growth expectations for shop units and shopping centres alike dropped for 2018 and into 2019.

The survey analyses views across the UK property sectors for prime and secondary property to provide a short-term view of the industry’s expectations for capital and rental growth. The survey is conducted by Dr Karen Sieracki of KASPAR Associates.


Compared with the previous survey, conducted in March, investors in the UK market were less uniform on what to buy and sell. Industrial property remained the favourite purchase, although only by 45 percent of respondents, compared with 64 percent in March.

Retail was still top of investors’ lists of assets to sell. In total, 27 percent of respondents indicated their willingness to sell shops, although that proportion was down from 36 percent in the March survey.

Residential property in the South East and North West of England was identified as a preferred purchase by 27 percent of those polled; the first time residential was considered a strong buy option by those surveyed.


After noting slight outward movement in average prime property yields in the March survey, respondents this time around reported slight compression of 10 basis points to 5.4 percent, putting yields in line with the levels recorded in the July and March 2017 surveys. Over the past three years, average yields have been relatively stable.

Meanwhile, average secondary yields moved out moderately by 20bps to 7.5 percent. As with prime yields, secondary yields have been stable overall, with the low point of the past three years recorded at 6.8 percent in November 2015.

By sector, prime shops continued to reflect the lowest yields, at an average of 4.9 percent. Prime business park yields were the highest, at 6.4 percent. The greatest compression was 30bps for prime distribution.

In the secondary market, the highest average yields were reported for shops, at 8.9 percent, with outward movement of 220bps. The greatest compression was for secondary business parks, which came in by 140bps to 7.9 percent.

The overall gap between prime and secondary yields is widening. Between the March and July surveys, the gap increased by 48bps, to 208bps. This is above the long-term average of 167bps recorded from July 1996 to July 2018.

Most prime and secondary sectors were considered underpriced, except for prime offices and prime shopping centres, which were considered fair market value and prime shops, which were considered overpriced.


While respondents still expect rents to grow during 2018, the forecast for average rental growth was reduced to 0.1 percent from 0.5 percent in the March survey. All sectors were downgraded, except for business parks and industrial property. The largest downgrade was 140bps for shop units, followed by retail warehouses and shopping centres, each dropping by 120bps.

The highest rental growth for 2018, according to respondents, continued to be industrial at 3.2 percent, followed by distribution at 2.2 percent. However, these were the only two sectors in which rental growth expectations were upgraded.

Expectations for 2019 were further downgraded. Average rental growth was downgraded to -0.5 percent, a downgrade from the -0.4 percent reported in the March survey. The biggest negative adjustment was a downward revision of 170bps for both shopping centres and retail shop units, followed by retail warehouses by 120bps. Only two sectors were forecast to see positive rental growth: industrial property at 2.2 percent and distribution at 1.4 percent.


Commercial property across all asset classes – except industrial and distribution – is expected to experience negative capital growth across 2018. Despite that, average capital growth expectations improved slightly by 30bps to -0.6 percent since the March survey.
Retail, however, was downgraded, with a 290bps drop in capital growth expected in shopping centres. The largest positive adjustment was 350bps for industrial, followed by 200bps for business parks. Positive capital growth of 7 percent is forecast in the industrial sector, with 4.2 percent for distribution.

Into 2019, average capital growth was further downgraded by 20bps to -1.4 percent. Again, industrial and distribution emerged most favourably, with positive upgrades of 450bps and 170bps, respectively, bringing capital growth projections for the two sectors to 5 percent and 1.7 percent, respectively.

The relative change from 2018 to 2019 for capital growth was worse for most sectors except for retail. Shopping centres saw the best relative improvement of 150bps, followed by retail warehouses at 50bps.


Total returns expectations for 2018 remained steady, at 4.3 percent, albeit an increased expectation from the November 2017 survey, when 3.4 percent was forecast. The forecast total return for 2019 was reduced by 100bps to 2.5 percent. The main reasons given by respondents included expectations of capital value decline by 36 percent of respondents and pressure on retail by 27 percent.

Asked why investors should put money into property, income return was cited by 36 percent of respondents, plus asset-specific performance attributes by 27 percent of respondents. Others cited property’s heterogenous character, diversification, less volatility, higher yield and asset-management opportunities.



The state of the UK high street retail market was cited as a concern by many of those surveyed. Some 45 percent of respondents felt company voluntary arrangements were being used opportunistically by retailers.

If this persists, 82 percent said, retail income would be impaired and capital values would decline. Some commented that CVAs are no longer fit for purpose, retail vacancy is likely to increase, and a lack of landlord co-operation is exacerbating the situation.

However, 64 percent said they were still investing in retail. Respondents who said they would not invest in retail cited the risk of bad performance and fear of increased vacancy as reasons, with some saying it is too expensive.

UK interest rates were also a hot topic, with 27 percent believing UK interest rates would be 1.25 percent by the end of 2019 and some respondents projecting them to hit 1.75 percent by the end of 2020.