Convenience retail remains a solid sector in which to invest, a new report by Christie & Co has shown.
The annual Business Outlook report by the specialist business property adviser noted that retailers came under pressure in 2023 from supply chain inflation, price-sensitive customers and rising store theft, all amid the cost-of-living crisis.
Nevertheless, many stores maintained good profitability, which fuelled buyer appetite, especially among existing retailers, investors and from a growing number of small multiple independents seeking expansion, the report said.
According to Christie & Co data revealed in the report, average offers have started to balance out against the peaks seen in 2021-2022 but the team still receives multiple offers per instruction and the long-term trend remains on an upwards trajectory.
In addition, the aggregate value of offers was 31 per cent higher and instruction viewings increased by 17 per cent compared to 2022. Christie & Co said this underlines the ongoing popularity of the convenience sector as a good investment. Demand is strongest for mid- to high-turnover stores (sales of £25,000 per week or higher) and buyers are willing to pay premiums for high performing sites.
“Whilst it is clear to all that the economy faced a variety of challenges in 2023, the convenience sector was one to weather the storm,” Steve Rodell, managing director of retail at Christie & Co commented.
“It remains a solid sector in which to invest, even though it faced increasing competition from major corporate entities. Buyers new to the industry need to take good advice on location and store format before jumping in, but when they get it right, the return on investment can be attractive.”
In the forecourt sector, transactional deal flow was slower than usual until H2, largely due to the increased cost of borrowing. Yet stabilising inflation and interest rates helped to unlock the market in the second half, and Christie & Co experienced a 20 per cent uptick in deals agreed and eight per cent increase in exchanges.
At the independent level, asset sales under £3 million drove market activity with higher valued assets remaining a rarity or "off market". Supply was limited as many retailers opted to invest in their existing sites or trade rather than sell.
“Forecourt deals were sluggish for much of 2023, and we saw many off-market deals take place where the seller is undervaluing their site. Direct approaches from would-be buyers are very common in this sector, leading some operators to believe it’s relatively straight forward to find a buyer off market,” Rodell said.
“However, we cannot emphasise enough that to maximise the price achieved and more importantly keep the accepted offeree moving forward in the current market, you need to attract multiple buyers. This is something we are well-placed to assist with. We have seen attempts to use the economic situation to reduce the agreed price. There is no need if you have back up buyers to retain competitive tension throughout the deal process. We have access to a solid pool of buyers who are looking to acquire in 2024 and encourage any operators considering a sale this year to get in touch, to ensure they achieve the best outcome.”
The report also outlines Christie & Co's market predictions for the year ahead, which are:
- Demand will continue to outstrip supply as buyers are attracted to the strong, needs-driven trading fundamentals that convenience retail assets offer
- Many first-time buyers still looking to enter the sector
- Multi-site operators will remain acquisitive and are looking to expand existing portfolios - seeking better quality, higher turnover stores to combat inflationary pressures
- Increased activity at small multiple operator level - could include acquisitions or expansion
- Multiples will also be looking to continue targeted divestment programs - shed poor performing/weaker sites to the independent market
