Resilience in retail
Sometimes it takes a crisis to show how the land really lies. Before the pandemic began, we at Ediston already saw out-of-town retail parks as the most attractive part of the UK’s commercial property market. The Covid crisis has only cemented our conviction.
All retail sectors were hit hard by lockdown, but retail parks came through it in much better shape than most. Vacancies were relatively low, footfall recovered quicker, and many retail-park tenants remained open even at the height of lockdown. And now, the outlook is increasingly bright.
So, with the future of the office sector uncertain, the Ediston Property Investment Company (EPIC) has a growing focus on the retail-warehouse sector. Before Covid struck, we already had a strong preference for retail warehousing, with around 70% of assets invested there. Over the past two years, we’ve increased this to 80% – and we’re moving towards full investment in retail parks.
Increasingly, then, EPIC is the specialist retail-park REIT. This reflects the profound changes we see in the way that we live, work and shop.
For most of us, life is very different than it was in 2019. For one thing, we’re spending much more time working from home. Indeed, home working may now be the ‘new normal’ for a large proportion of the workforce.
That has an impact on where we shop. Working from home hinders urban high streets and shopping centres but boosts retail parks – simply because they are closer to home for most people. In today’s world, convenience is king. That doesn’t just mean getting things delivered to you, but also the ability to go shopping where there’s easy access, plenty of parking and a wider range of outlets. Out-of-town retail parks fit that bill.
So retail parks offer convenience to the customer. But they’re better for retailers too. In contrast to high-street stores and city-centre malls, retail warehouses offer more – and more adaptable – space at considerably lower rents. They also provide a hub for ‘last-mile’ deliveries. As home deliveries surged during the pandemic, many companies struggled to cover the cost. But with their abundant space and logistically advantageous locations, retail warehouses help to make online sales work.
Clicks and bricks
And then there’s click and collect – where customers buy online but collect in store. Growth here is outstripping pure online sales. That’s because customers like to check or try on what they’ve bought. At the same time, it allows retailers to make supplementary sales. Around 40% of shoppers make additional purchases when they pick up items they’ve bought online. So, it’s no surprise that retail-park tenants are increasingly requesting click-and-collect bays outside their stores – something that urban shopping centres can’t offer.
Under this hybrid model, retail parks complement online sales – and vice versa. Bricks and clicks aren’t in competition but are working together to improve the consumer experience. This omnichannel approach looks set to thrive in the post-pandemic ‘new normal’.
We like retail parks so much that we’ve even built one of our own. The Haddington Retail Park, outside Edinburgh, has been up and running since July 2021. Despite being completed at the height of the pandemic, it’s done exactly what we hoped it would: create income and value for our investors. And it’s already 97% occupied.
EPIC for income
By concentrating on retail parks, we believe EPIC harnesses all of these attractions. In a yield-starved world, its current 6.7%* dividend is believed to offer a compelling level of income. And that dividend is fully covered and paid monthly – with scope for increases as conditions normalise.
Investments in retail warehousing also offers a degree of protection from inflation. Given the steep recent rise in prices, that’s a crucial consideration for investors. Commercial property isn’t a panacea for inflation, but rents will eventually rise in response. And retail parks offer tenants much more flexibility to adapt to changing conditions.
Our retail-park portfolio has come through the Covid crisis in good shape. We think it’s well placed to continue delivering for our clients as economic conditions improve. And with our fully, covered dividend, there could be a compelling case for investors to choose EPIC for income.
*As at 30 June 2022
The contents of this article should not be construed as legal, tax, investment or other advice. Each prospective investor should make its own enquiries and consult its professional advisers as to the legal, tax, financial and other relevant matters and risks concerning any investment opportunity.
Past performance is not a reliable indicator of future performance – the value of a stock market investment and any income from it can fall as well as rise and investors may not get back the amount invested.
Whilst information contained in this article is believed to be accurate at the date of publication, it is subject to change and does not purport to provide a complete description of Ediston Property Investment Company Plc (the “Company”) or its future prospects or performance. Any forecast, projection or target is indicative only and not guaranteed. In particular, the payment of dividends and the repayment of capital are not guaranteed.
The Company invests in property assets which can be highly illiquid, typically do not grow at an even rate of return and may decline in value, all of which may have a negative impact on the value of the Company.
To the fullest extent permitted by law, The Company, Ediston Investment Services Limited and their respective directors, advisers or representatives shall not have any responsibility or liability whatsoever for any loss (whether direct or indirect) arising from the use of this documents or its contents.
Issued and approved by Ediston Investment Services Limited which is authorised and regulated by the Financial Conduct Authority (FRN:706655)