The UK retail property market is in fine form with c-stores, post offices and CTNs flying off the shelves.

Convenience stores have been top of many shopping lists in the past couple of years, with both the multiple retailers and entrepreneurs keen to snap up good stores. The recent flurry of acquisition activity doesn’t show any sign of slowing down, and the supermarket chains still have teams scouring the country for potential sites. Somerfield, for example, continues to expand its business, most notably in the forecourt c-store sector where it recently agreed two deals: buying 118 forecourt sites from Texaco for about £15.3m and 22 UK forecourt convenience stores from Fuelforce for £1.5m.
Meanwhile, Sainsbury’s continued its push into the c-store sector with the acquisition of SL Shaw, a neighbourhood c-store operator with five shops. Tony Evans, director at Christie & Co, says the CTN property sector is also attracting buyer interest and even corporate operators such as TM Retail. And following the Post Office’s reinvention, those outlets that retain a post office are much stronger businesses. As a result, Christie & Co has sold almost three times as many post offices in the first four months of 2005 as during the same period last year. Says Evans: “Some existing operators are looking to acquire more shops to strengthen their position, while other people might just want to move over the road.”

The National Association of Estate Agents’ (NAEA) commercial working group reckons the increased number of sales is also the result of poor returns on other forms of investment, such as a stalling stock market, which means buyers see property as more solid. Also, many tenants have decided they have paid enough rent - while they don’t expect much from their pension - and are snapping up the chance to buy a freehold property. Says chairman Charles Smailes: “Small private operators have been looking for a chance to buy rather than be subject to a rent review.”

Internet property site has seen more traffic and more store owners who are cutting out the middle man by using the web to reach potential buyers. According to Tony deVizio, sales and marketing director, the South East and the Midlands are enjoying the most activity in a market which has seen a 12% overall increase in c-store sales during the past 12 months.

Usually, people buy or sell their store after they’ve had some thinking time, typically after Christmas or their summer holiday, according to Dean Edwards, owner of Adams & Co. “The market had slackened off in the spring but sales are back to the level they were this time last year,” he says. So what are retail buyers after? First and foremost, says Edwards, they want to see a healthy turnover. “There are lots of stores doing £2,000-£5,000 a week,” he says, “but once you get above that - to about £8,000-£10,000 - there’s strong demand, often from the multiple chains if the store’s in the right location. There are still stores out there with just a couple of tins on the shelf and they’ll have trouble if the owners want to sell, but agents will fight over a good business.”

The major players are also attracted by growth potential and are particularly interested in stores larger than 2,500sq ft that have a weekly turnover of £15,000 or more, adds Corrigan Lockett, managing director of Locketts & Co. He says: “There’s still movement in small stores, as there are buyers out there for the right sort of shop.” Lockett says buyers are more likely to be young entrepreneurs prepared to put in the effort than older people looking for a new career in their twilight years. “People looking for property are now more choosy and only really want stores with a turnover of £8-10,000,” he says. “And location is everything for them - they’ll pay more for the quality.”

Edwards, at Adams & Co, says a standard convenience store will sell for 1.25 times the adjusted net profit - with average gross margin of between 18-22% - and adds that square footage isn’t always relevant: “People would rather buy a 1,000sq ft store that makes a good profit than a 5,000sq ft store that doesn’t do that well - despite what a vendor might tell them about its potential.” Retailer Christian Whitfield recently bought another store to add to his growing portfolio in the Bristol area under the Premier fascia and says he managed to pick up a good shop because it was too small for the multiples to be interested in. “They’re also looking for stores that appeal to people in the C1 or B bracket, whereas this one has a hinterland with a C2, D or E socio-demographic, which suits us.” He adds: “There are still plenty of stores out there to be had but you certainly don’t want to get into a bidding war with the multiples as their pockets are much deeper.”

The impact of all this activity in the sector is that prices have been given a fillip in the past 18 months or so, although it’s hard to get a feel for exactly by how much as agents’ opinions vary. For example, deVizio at reckons by about 10-15%, while the NAEA’s Smailes says some of the prices paid for freehold sales have been “extraordinary”.

Whitfield says his property agent doesn’t have much property on its books and that its prices are increasing, driven up by the multiples and big regional players, as well as some retailers who think they can get more than the market value. Jason Sanga, who owns a number of stores in Birmingham and Bristol under the Jeeves fascia, is still looking to expand his portfolio but agrees prices have gone up by about 15% in the past two years. “It’s hard to get sites because the mul- tiples are chasing the good ones and willing to pay crazy prices,” he says. “It’s a cut-throat environment.”

However, Evans, at Christie & Co, believes prices have come down slightly over the past 12 months or so as buyers are not prepared to pay more than the market rate. “There isn’t an average price - two people might have a different view of a store which would affect what they’re willing to pay.” He adds that some c-store operators see a store of a similar size, overlook important factors and mistakenly think their store should be worth more. “They see high prices, which aren’t always right.”

There are still plenty of properties around, although the good stores take a bit more seeking out or imagination to realise their full potential. And it looks as though the market will remain buoyant, according to agents, with interest driven by the multiples and a younger generation of retailers ready to take over from older retailers who’ve decided to cut their losses in the face of fierce competition. Adams & Co’s Edwards doesn’t foresee any let-up in demand: “There will always be demand for good shops, even though it’s hard work; one store I valued recently was making £90,000 profit and that’s a good wage in anyone’s book.” Smailes of the NAEA adds: “Commercial investment is pretty hot at the moment and I think it’s a trend that will continue.”