Grey market for retail warehouses increases – DTZ

While the stock of retail warehouse properties openly available on the UK market is limited, DTZ says it is aware of £154m of stock “currently available quietly on the grey market” at the moment and at least £200m more of stock is expected to hit the market during the final quarter of 2012.

So far in 2012 a total of 49 retail warehouse properties have exchanged for a total of £813m, DTZ says, representing an average lot size of £16.6m. This compares with £1,271m at this point in 2011. Around 60% of all transactions by value in the third quarter were completed as off-market transactions, it notes.

The firm says that despite an increased volume of deals in the third quarter (24 lots exchanged in Q3 for more than £463m), investment activity in retail warehouse property is still significantly below 2011 levels. DTZ expects a continued flurry of off-market transactions to take place as funds invest in this sector rather than waiting for properties to come to market.

DTZ continues to forecast good liquidity in lot sizes of £10m to £30m for prime South East assets in dominant locations. As before, the most sought-after assets will be those with long income to strong covenants and strong trading locations let off a rack rent, it adds.

Market trends among occupiers remain similar to those seen in Q2: foodstores demand remains broad and strong – although less active than before – and discounter demand is also strong. DIY demand is limited; demand from furniture and furnishings companies is reasonable; and demand from catering and small A1 pods is very strong. “Finally, open consent demand is relatively patchy in what is now a more mature market,” it adds.