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Uncovering asset level performance – Retail

by | Jan 18, 2019

Research in real estate, and indeed in many other asset classes, tends to focus overwhelmingly on average performance. But averages mask very differing fortunes of individual assets. This blog, and its partner, sheds light on the variety of asset level performance seen in UK commercial property in 2018.

Figure 1 shows average capital value growth by sector in 2018, taken from our Monthly Index. Looking at this chart, some might assume that every Industrial unit rose in value by 12.4% while every Shopping Centre fell in value by -10.5%. This is not the case.

To explore asset level performance over the year we selected properties that were continuously present in our CBRE UK Monthly Index sample for the whole of 2018 and calculated their change in capital value over the 12-month period. To make comparisons between sectors with different sample sizes, we have presented the results in percentile form. This blog will focus on retail, where attention has focused on declining values in the second half of the year; analysis of office and industrial can be found here.

  • In 2018, no Shopping Centre in our sample reported positive growth in value.
  • Half of the Shopping Centre sample reported falls of more than ‑10%, while 11% of assets saw values fall by more than -20%.
  • Average growth for High Street Shops (-3.4%) and Retail Warehouses (-8.2%) was negative in 2018, but around 25% of assets in each sample saw values rise.

Figure 3 further exposes the limitation of average figures, showing that asset level volatility was actually lowest in the poorest performing sector on average.

  • Although average capital value growth was weakest for Shopping Centres, the sector also had the smallest spread of performance.
  • Retail Warehouses and High Street Shops saw progressively better (less bad) capital growth on average, but also progressively more volatility in asset level performance on both the upside and the downside.
  • That the largest decline in individual asset values came not in the sector seeing the biggest average decline is very likely an indicator of the greater asset specific – and crucially tenant specific – risk in the High Street Shop and Retail Warehouse sectors.

This blog has shown that while our Monthly Index sector averages give a good guide as to how markets are performing on average, they reveal less about the distributions of individual asset level performance. As we have shown, the range of asset-level results can be wide, individual assets can (in large number) buck sector trends, and the weakest performing markets are not necessarily the most volatile at the asset level.

For insight into our office and industrial sample, please follow this link.

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