Retail property good investment

The property consultant Donaldsons is predicting that returns on investments in retail property could grow by more than 20 per cent during 2006. The firm's position contrasts with other industry estimates, such as the IPF Forecast Survey which is predicting returns on commercial property of 11.2 per cent. Retailers have been complaining of tough conditions on the high street as consumer spending cools and costs, particularly rent, continue to rise. Although the World Cup has boosted spending, few expect it to continue at the same level after the tournament.

Bryan Duncan, head of retail at Donaldsons, said: "This is a sector that is still performing well, despite the doom mongering. What fuels rent is demand, not margin. So if a bunch of retailers all want the same location, they will outbid each other. Despite all the scare mongering about rent, they need to acquire more space. Therefore there's demand, therefore there's rental growth." Retailers have long complained about the inflexibility of their cost bases, such as upward-only rent reviews, and a number of shops are now asking their landlords to introduce turnover-based rents.