It's hard to muster enthusiasm for most investments in the retail sector. Last year inflation chipped away at consumers' disposable income. This year inflation is lower, but the economy is shrinking. Yet canny contrarian investors are putting their money into one niche - discount retail property - and it may be worth following suit.
One the face of it, retail property looks like a tough area to be in right now. Peacocks and
Yet the big victims of the squeeze on disposable incomes are in the mid-market. Pound shops and convenience stores, like luxury brands, are coping pretty well. Rents account for a lower proportion of store turnover in down market centres than in big malls, which means retailer profitability is more insulated. Best of all, rental yields in value centres are high - typically at least 8 per cent. So companies with good access to bank debt can make a lucrative carry trade by borrowing at 4-5 per cent and investing at 8-10 per cent.
Tellingly, two property specialists with excellent track records wax lyrical about the sector. Most property executives failed to anticipate the property crash, with disastrous results, but there are exceptions. David Lockhart sold his Aim-traded property vehicle Halladale in April 2007 - just before the peak - only to float value retail specialist
Another company with an excellent track record is Aim-traded fund manager
Sentiment is bearish towards retail, but the right properties bought cheap can generate strong and sustainable cash flows. As a long-term contrarian investment, NewRiver looks sound on a 7.8 per cent dividend yield. First Property, one of Simon Thompson's Bargain Shares last year, yields 6.5 per cent and boasts an enviable track record of growth.