A Cross Sectional Study of Retail Yields Across the UK

In 2001, equivalent yields in the UK retail market varied between 6.5% and 10.5%. These yield differentials reflect diverse income growth potential and risk factors that are priced differently in different retail markets. Pricing factors that determine yields across markets is an exercise most useful for property investors. Not only they can make decisions based on the most influential factors but also they can identify markets which are under-or over-priced after taking into account a wealth of data. The analysis can extend further to identify whether all cities are explained by the same group of socio-economic, demographic and location specific factors. This study constructs a cross-sectional model of UK retail yields. Yield differentials across centres are examined with respect to rent variation and an extensive database that contains economic, social and location specific information. A number of commonly used statistical tests are applied to select the factors that are systematically priced across markets. At the second stage of this research, further analysis is performed using principal components and factor analysis techniques. This is to reinforce the findings in the first stage and identify factors that are more relevant to specific groups of cities. Therefore, risk variables are grouped where possible into a number of factors common to all retail locations. Unique factors are also identified that are market specific. Statistical analysis of clustering is applied and locations are grouped according to shared characteristics.