(August 13, 2013) – The UK’s high streets are undergoing a revolution—and pension funds can be a part of it, according to property investment specialists DTZ.
On August 12, aiCIO reported that the £13 billion Strathclyde Pension Fund had invested in a property site that has recently been granted permission to change from a retail store’s basement to a restaurant after the previous tenant went bust.
As pension funds continue to push into real assets, it seems the transformation of the UK’s high streets in the wake of retailers failing during the recession could provide a new investment prospect for pension funds.
Chris Cooper, managing director of property investment specialists DTZ–which brokered Strathclyde’s deal–told aiCIO that as high streets became less dominated by retail players and more occupied by leisure and service-related industries, pension funds were becoming more interested.
“In some markets [high streets] are looking favourable, especially in a centre such as Oxford,” he said.
“The supply is kept under control, and as with the Strathclyde example, even when a tenant goes bust, we were still able to do something different with the property.
“We are seeing high streets and town centres morph into something else. They’re not somewhere where people just buy things anymore – leisure businesses and restaurants are becoming popular alternatives.”
Cooper stressed the principal could not be applied uniformly across every town in the UK, but that in certain locations where the footfall was good, and where supply of units was constrained, the prospects looked good.
“The main reason institutional investors are finding them more appealing is because they’re not just seen as a liability matching asset,” he continued.
“Where everyone used to think of property as a kind of hybrid with bond and equity characteristics, but with a bit of capital growth thrown in, most investors are now thinking about them from the income side.”
He added that in some cases, his clients saw them as less risky than corporate bonds.
“If the company goes bust, you’ve lost your principal. But if a tenant goes bust you can still do something with the site,” he said.
“Most of our clients are content with their level of exposure, or are thinking of increasing it. I can’t think of one who’s looking to reduce.”
It’s not just pension funds looking to take advantage of real assets: insurers are interested too.
Last month, JP Morgan Asset Management said insurers were becoming more interested in unusual credit strategies, including senior secured liquid loans, commercial leases and mezzanine debt.
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