April 1, 2015 / 5:31 PM / in 5 years

Investors eye up out-of-town shops as Britons click-and-collect

* Click-and-collect can benefit large store format

* Retailers adding larger stores to portfolios

* Large store property deals jump in 2014

* Retail warehouse total returns up 7.1 pct in Q4 2014

* Consultants expect rents to rise

By Esha Vaish

April 1 (Reuters) - Investors in UK commercial real estate are snapping up large out-of-town shops to capitalise on the rebounding economy and a trend among online shoppers to click-and-collect.

The growing popularity of e-commerce has hurt prospects for some retail investments, but out-of-town warehouses are expected to outperform and provide steady returns even as the proportion of online sales grows.

Record low interest rates, higher employment and an improving housing market are enticing more Britons to shop and the prospect of higher yields has enticed investors back into retail property, where returns have until recently, lagged those in other commercial property classes.

But shopping preferences have shifted. More Britons are ordering goods online and, frustrated with inconvenient delivery slots, are collecting their purchases in person.

“Out-of-town retailers are able to capitalise far more easily on click-and-collect as people want to drive to the front door in their car,” said Andrew McGregor, head of leisure and out-of-town retail at real estate consultancy Knight Frank.

Out-of-town locations also get more of a boost from a buoyant housing market as that is where most retailers selling furniture and household electricals are based.

Retail warehouses, unlike mega-sized distribution warehouses out of which e-commerce and delivery companies function, are standalone units or purpose-built parks, often located on the fringe of or just outside towns. In 2014 the average sized unit was worth 34 million pounds ($50 million).

Retail warehouse property deals worth 2.54 billion pounds were struck last year, up from 2 billion pounds in 2013, data from real estate consultant Savills Plc showed, and with investment funds the buyers in 65 percent of deals.

“We think the growth prospects for (retail warehouses) are excellent, with rents offering good value compared to city centres or shopping centres,” said Alice Breheny, head of global research, TIAA Henderson Real Estate.

TIAA Henderson’s billion-pound UK Retail Warehouse Fund secured an extension to run until December 2021 after all its unit holders, comprising of UK and European institutions, elected to continue the fund, seeing good growth prospects.

Multi-channel retailers are increasingly looking to add warehouses to their property portfolios.

Next Plc, which sells clothes and furnishings via stores, catalogues and online, intends to add about 350,000 square feet of net new space in 2015 and says about half of its online orders are picked up in shops using a click-and-collect service.

The company said 75 percent of the stores it opened in the year ended Jan. 31 were large, out-of-town ones, and said that was a larger percentage than was normal.

White goods and non-food retailers Dixons Carphone Plc’s Currys and PC World and Home Retail Group Plc’s Argos are opting for fewer, but often larger, stores, closing less profitable ones and keeping those that allow them to take advantage of the trend for click-and-collect.

At Argos, which sells 20,000 products ranging from furniture to electronics, 80 percent of those ordering via the internet opted for its 'Check & Reserve' service in the eighteen weeks to Jan. 3. (bit.ly/1CcTlm9)

“More retailers are saying to us that these locations are good for click-and-collect and very good for making it easy for customers to return goods,” said Mat Oakley, director of Savills research.

The increase in the number of people visiting out-of-town sites was the highest amongst all retail locations in February, according to a report by the British Retail Consortium and customer counting services provider Springboard.

Diane Wehrle, retail insights director at Springboard, said out-of-town sites were gaining in popularity and part of the reason for that was the growth in click-and-collect and plentiful, free parking at these locations.

Competition, though, is fierce between funds wanting to grab primary assets - those newly built or refurbished retail warehouses in prime locations with strong tenants. This is putting pressure on the yields on those assets, forcing many to look for lower quality property assets.

Total investment returns from retail warehouses were up 7.1 percentage points to 14.5 percent by the fourth quarter of 2014 on an annualised basis, data from index provider MSCI Inc shows.

That compares with a rise of 6.2 percent in returns on standard retail real estate assets, which include most shops and supermarkets.

While online only retailers in Britain have been growing fast, the popularity of click-and-collect is also likely to encourage more of them to test physical stores - an outcome that could further boost retail warehouse values.

The click-and-collect market is set to more than double by 2017 according to retail research firm Planet Retail in a report published in 2014, with a third of the top 50 retailers in the UK yet to offer the service.

$1 = 0.6749 pounds Editing by Elaine Hardcastle

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