THE retail investment market has had a particularly turbulent two years as values have fallen by an average of 35 per cent.

The retail sector was hit hard and fast during the credit crunch and many thought retail values had overcompensated.

James Metcalf, retail investment associate director at DTZ said: “This has provided investors with excellent buying opportunities and we are currently seeing an increased level of transactions in the retail market and signs it will come back much quicker than office or industrial sectors.

“In particular the sub-£5m market, where private investors have had their savings hit hard and are getting between nought and on per cent interest from their bank, is very active at the moment. We have seen a number of high-street bank investments bought over the last few months at yields of between five and six per cent.

“One investor was quoted as saying, ‘why have your money in the bank and get 0.5%, when you can buy the bank for six per cent?’ While said tongue in cheek, this is ultimately what is driving this area of the market.

“The Abbey unit on Northumberland Street, in Newcastle, was recently acquired for an initial yield of 7.1%, which could be considered an excellent deal in today’s market, in light of the yields achieved on more recent bank transactions.

“This current trend has been seen elsewhere with the Wilkinson’s unit in Lancaster recently going under offer for a yield of 5.5%, while the Hooper’s department store in Harrogate, which had five years of income remaining, attracted 12 bids and has gone under offer in excess of asking, at a rumoured 6.25%.

“Indeed, several properties have gone to best bids recently as a result of low interest rates and this trend looks set to continue for well-let properties in good locations.

“This is reminiscent of the investment market two years ago, when best-bid scenarios were commonplace.

“While the fall in interest rates has led to increased activity in the sub £5m market, we are also seeing signs of an increased appetite for larger-lot sizes from institutions who are now seeing real value in the market.

“This renewed interest can be explained to some extent by looking at Northumberland Street, Newcastle’s prime retailing pitch. We have estimated that during the summer of 2007 the prime section of Northumberland Street had a total value in the region of £600m, off an average yield of circa 4.25%.

“Today the prime yields on Northumberland Street are nearer 6.25%, which would give a total value of just over £400m, some £200m less than the height of the market in mid 2007.

“As a result of this a number of funds, joint venture partners and private individuals have perceived value in the market and have been acquiring on Newcastle’s prime pitch.

“Recent deals on Northumberland Street include the Abbey and Shoe Zone units, as well as the Next, H&M and WH Smiths blocks which were sold in portfolios.

“To add to this we are aware of a number of other properties which are available to buy on Northumberland Street at present.

“While we are unlikely to see much rental growth over the next few years on prime pitches, the attractive yields will help show a healthy return to the investors who can expect to make significant profits on the back of yield shift as the market returns.”