Discount retailers change the landscape of out-of-town retail, Knight Frank reports

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Discount retailers are currently expanding aggressively and are significantly changing the out-of-town retail landscape, according to Knight Frank’s recent out-of-town retail and leisure research report. 

Leading discount retailers have some of the highest profit margins within the retail sector. Customers are embracing the trend and the increased presence of these retailers on retail parks has led to some of the best operators enjoying margins of over 15%.  

Knight Frank’s research reveals headline rents have fallen in recent years, driven by some of the more aggressive discount retailers. An average rent for The Range, across a sample of 54 stores, is £10.55 per sq ft, while B&M pays just £11.71 per sq ft across a 91-store sample. These figures are much lower than for the more established operators which expanded before the recession. 

The investment market saw approximately £444m worth of out-of-town deals in the second quarter, showing a 146% increase in volume on Q1 and a 25% increase in the number of deals, said researchers. Recent transactions include the sale of Coliseum Shopping Centre in Ellesmere Port for £81m, reflecting a NIY of 5.25%. Overall investor sentiment towards the out-of-town market is positive, although there is still a significant yield differential between prime and secondary assets, which is expected to continue. 

The strong increase in the number of casual dining outlets on retail parks has also been a significant recent trend in the out-of-town sector. At least four times more A3 units opened on retail parks compared with fast food outlets over the last year. Operators such as Nando’s, ASK and Pizza Express have recorded strong organic growth and have helped to drive a change in consumer habits and, in the process, have helped to extend dwell time and enable schemes to trade for longer during the day. The average rent across 206 restaurants was found to be £24.36 per sq ft, with an average size of 3,450 sq ft.  

Andrew McGregor, head of out of town retail and leisure, Knight Frank, said: “Investors’ sentiment for out-of-town retail parks, substantially let to discount operators, is patchy at best.  However, Knight Frank’s analysis would suggest that many of these operators are significant covenants in their own right, and whilst they are driving aggressive tenant packages, they are extremely successful retailers which generate high levels of customer footfall.”

“Coupled with this, many landlords are now considering A3, food and beverage offers, on their out-of-town retail parks, which is further enhancing footfall and dwell time for shoppers seeking sustenance. A prime example of this is the recent addition of Frankie & Benny’s and Harvester at Birmingham Fort.”