Acceleration in yield softening

Average prime yields moved out by 18 basis points (bps) to 6.16% in November, an acceleration on the 4 bps shift reported the previous month and the largest outward move since July. Nine sectors reported yield softening, with the largest movement (+50 bps) reported for South East offices. And looking to the early part of 2024, we expect to see additional outward shifts with four sectors citing outward arrows. Any additional softening, however, should be minimal subject to the expectations that the current Base Rate cycle has peaked hold true.

Transactional activity remains muted, albeit confidence is starting to improve. International investors continue to dominate activity, accounting for 54.1% of year-to-date volumes in Q3, in line with the five-year average. But, it has been activity by Privates that has really stepped up. Last year, private investors accounted for 15% of volumes across UK commercial (office, retail, industrial, and hotels). This equated to total volumes of £6.9bn, the highest amount invested by this group since 2013 – its year-to-date share is at 18.5%. Clearly, privates, more immune to high debt costs, are capitalising on diminished competition to secure assets at more attractive values. Along with privates, we are also starting to see a more diversified buyer pool emerge as the price shift of the last 12 months is delivering price discovery and interest from new investors.

Christmas 2023, bumper year or damp squib for retailers?

Being the December issue, it seems only right to take a look at what Christmas 2023 may hold for retailers and what this could mean for the year ahead.

The cost of living squeeze has been taking its toll on consumer confidence and, in turn, spend. For example, while retail sales in nominal value terms have been in positive territory, with inflation stripped out every month of 2023 has seen retail sales contract. Likewise, volumes, a better indicator of consumers’ propensity to shop, has also consistently been in negative territory this year.

But, while spend this Christmas is likely to be muted against historical standards, it may be better than what we saw last year. Retail sales volumes for the month of December 2022 was down 8% year-on-year (YoY), with a very weak 1.8% uplift in retail sales values. In terms of volumes, this was the largest decline for the month of December since 1989. While inflationary pressures have not fully dissipated, they are on the wane with CPI already half of that seen in December 2022. This is no doubt feeding through to consumer confidence, which has been on an upwards trajectory over the course of 2023, with GfK reporting a 20-point improvement in November 2023 against the same month last year. Looking to previous Decembers, where inflation was running at a similar rate to what we have now, suggests a contraction in volumes in the region of 1%, with sales in value terms reporting positive growth.

Christmas 2023 may not be a bumper year but, on the whole, won’t be a total washout for retailers either. This and improving consumer sentiment for 2024, coupled with the continued slowing in inflation, points to an improving retailing landscape next year.

Retail spend over the festive period may be relatively muted, but spend on eating and drinking out may prove to be a bright spot if recent trends are anything to go by. Lloyds Bank Market Intelligence (LBMI), drawing on aggregated data from Lloyds 26 million customers over the 12 months to October 2023, found that consumers continue to be spending on ‘experiential’ activities such as going out. Spend was up 9% YoY, and while some of this growth will be driven by inflation, the fact that the number of transactions was up 7% is a more telling statistic. More interestingly were the consumer groups driving this spend. According to LBMI, it was spend by older cohorts that saw the largest increase. Spend by the 60–69 year old group was up 19%; for the over 70s, it was up 22%. While the 30–39 age cohort accounts for the largest share of spend, the resilience of the ‘grey pound’, particularly in the face of macroeconomic headwinds means they are an important consumer group for pub and restaurant businesses.

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