While there are signs that demand for other retail asset classes is now dampening, the relative yield discount offered by shopping centers will lead to a further strengthening of demand for this asset class, particularly from UK funds.

While there are signs that demand for other retail asset classes is now dampening, the relative yield discount offered by shopping centers will lead to a further strengthening of demand for this asset class, particularly from UK funds.

This demand will put further downward pressure on shopping center yields over the coming months, albeit with the focus primarily on prime product, according to a new report by Knight Frank.

The property adviser said that supply remains a key constraint to transactional activity in the shopping centre market. UK banks are keen to explore alternatives to a straightforward disposal of assets in or nearing distress and, with the relative shortage of buying opportunities remaining in the near term, values on secondary assets will continue rising.

Requirements for strong London locations from retailers and restaurant operators are increasing, and will revive rents both in London’s high streets and shopping centers. This will spread to prime provincial locations, but recovery remains some way off for secondary pitches or towns. Continuing the trend of the last two years, shopping centre lease terms will become increasingly flexible but we anticipate some stabilization in landlords’ favor in under-supplied locations.