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British Land: challenged UK retail market is encouraging opportunistic pricing amid sparse liquidity

British Land says only a number of relatively small retail parks exchanged hands in recent months, in addition to very few transactions for larger lot size assets. In this context, domestic and overseas buyers have started to recognise the value opportunity in the sector, British Land says. However, there remains a gap in pricing expectations where vendors are well-positioned. Assets with attractive alternative use potential continue to trade well, the REIT added.

Writing in its half-year results published earlier this week, British Land said the occupational market remains tough, which is reflected in the number of operators entering CVA or administration over the last 18 months. In addition, retailers continue to focus on optimising their store networks in a number of ways, not limited to store closures or rental reductions.

Chris Grigg, Chief Executive at British Land, wrote in the REIT’s half year results:

“Retailers are increasingly focused on their distribution and supply chain capability, where possible utilising existing store networks to ship from store to reduce delivery times. At the same time, many are enlivening existing space with concessions or events to drive footfall or are expanding into areas of high footfall such as transport interchanges. As a result, polarisation continues to accelerate, with assets able to support or enhance these characteristics typically less impacted by the broader challenges.”

More broadly, the London investment market saw £4.2 billion of transactions over the period, below the long-term average of £7.4 billion, according to data cited by the UK REIT. The occupational market continued to be supportive. To help attract the best talent, businesses are seeking high-quality space in exceptional environments located in the best-connected areas, British Land added.

Chris Grigg added:

“Overseas investors remained understandably cautious pending greater clarity on Brexit before investing in the London office market while vendors continue to seek premia to asset values. However, fundamentals continue to favour London as yields in central London remain attractive compared to many other European markets and cross-border investors benefit from the currency effect.

“The market backdrop remained uneven and volatile across the half as the Brexit process continued. UK GDP contracted in the second quarter of 2019 for the first time since 2012 with only services providing a positive, albeit slowing, contribution to growth. Consumer confidence has remained subdued, but unemployment remains low at under 4%. In recent months, the likelihood of a no-deal Brexit appears to have reduced, but we now face a General Election in December, so the outlook remains uncertain.”