Convenience Stores For Commercial Property Investment

Co-op Shillingstone 3

Why You Should Consider Convenience Stores For Commercial Property Investment

Convenience stores have been around for years and whilst they’re not new as a commercial property investment option, they continue to be a solid, profitable choice for your money. This month, we shine the spotlight on the humble convenience store and highlight exactly why they are a wise choice for commercial property investment.

As little as ten years ago convenience stores looked very different, operating more like glorified newsagents rather than the one-stop shops we know them as today. As online shopping exploded and the competition for larger goods increased, we saw big supermarket chains downsize and move away from the larger format stores that once dominated retail. In response to the needs of the modern consumer, the big supermarkets began rolling out a new, upgraded convenience store format.

Whereas the older, newsagent-style convenience stores would sell papers, cigarettes and confectionary, today’s outlets offer fresh foods like milk, meat, vegetables and bread as well as lunchtime meal deals and quality ready made meals for dinner. In short, convenience stores provide everything for today’s time-poor, internet-savvy and dual income earning households. In addition, we are eating out a lot more meaning big supermarket shopping trips result in a lot of waste as opposed to more frequent, smaller trips.

In terms of commercial property investment, convenience stores make a great investment for many reasons, but perhaps the most appealing is that they come with great leases. Generally these will be 10-15 years without break, which is naturally very alluring to investors as it guarantees income for a decade or more. In addition, these leases tend to have five-yearly reviews linked to inflation, meaning after five years you’re guaranteed to get an increase in rent, which in turn helps increase the value of the property. And if you need a loan you will find a number of lenders offering competitive terms thanks to the long leases.

Usually a convenience store investment becomes available to buy is when a new business is started. Tesco were the first major player to enter this market with their Tesco Express and Tesco Metro formats, and Sainsbury’s didn’t take long to follow with their Sainsbury’s Local offering. Since then, other main player in the market is the member-owned Co-operative’s Co-op Food chain. In the last decade we have acquired numerous properties let to these three players, for anywhere from £750,000 and upwards, and the majority continue to trade excellently (we have already renewed the leases of some of our first buys) as they are extremely well-run and well-serviced. At the entry-level end in the convenience store market there is McColl’s, who generally operate smaller units which are more affordable to smaller scale, private investors with budgets of £300,000 and upwards. There are a number of other operators in the market such as Budgens, Costcutter, Little Waitrose, M&S Food and regional players like Heron Foods, however due to either pricing, lack of new store openings or unsuitable lease terms, we haven’t acquired as many of these.

Location-wise, investors should consider properties either on the high street or in well-populated residential areas, because obviously supermarkets service the local population. Proximity to schools is certainly a plus given the significance of pre and post-school drop off traffic through the store. Parking space is also important to accommodate those making larger shopping trips.

Consequently former pubs make ideal locations for convenience stores, given that they often comprise large units of 2,000 – 3,000 sq.ft, on sites with plenty of parking, and also tend to be located at the heart of residential communities.

In the last 10 years Prideview Properties have acquired over 100 convenience stores nationwide for our clients. To view some of our recent acquisitions, click here, or visit our current opportunities page to see if there’s a commercial property investment to suit you. Don’t see what you’re looking for? Register your details with us here and our experienced team will contact you with opportunities tailored to your specific investment requirements.

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