The Basic Background
As I've been noting for some time commercial retail property is in trouble in the UK. Getting on for 20% of retail sales are on the internet now. Getting on for 20% of retail property is empty. We're not exactly going to claim to be geniuses when we note that there's a connection between these two points.
The point being that we've significant change happening in the underlying market here. Actually, rough statistics say that some 18% or so of UK retail spend is online now and some 16 or 17% of retail floorspace is empty. There's a connection between those two numbers, obviously enough.
We would therefore expect to see a certain decline in the value of commercial retail property and also in the companies that own much of it. Thus HMSO and LAND perhaps.
However, Sectoral Trends Are Just That, Sectoral
It's worth remembering that individual company performance can succeed even against such sectoral trends. Even in the Great Depression there were companies whose profits increased, whose share prices rose.
It's also true that a slight variation on the standard sectoral story can lead to success. As I've pointed out before about BBOX:LN,
However, such technological shifts also provide opportunities. Despite the Big Box in the name this REIT from Tritax isn't in fact building those Big Box stores so going out of economic fashion. Instead, it produces the big box warehouses desired by the internet retailers. They're not developing High Street space but the bits around the back of the industrial estate replacing that failing business model.
The company floated in 2013 at £1 a share and has been up close to £1.60. It appears that the general malaise in the commercial property sector has hit sentiment trading down to the low £1.30s level at pixel time.
Online shopping is not just a fad, we've proven that to ourselves by now. The developments are let out on long leases and it's a peculiarity of the British commercial property market that these always include upwards only rent reviews.
Being on the right side of technological changes and underpinned by a 5% prospective yield Tritax Big Box, BBOX:LN, is an attractive option for either income or to be tucked away for the longer term.
The Performance Since January
I tipped Tritax Big Box back in January, the share price since then:
(Tritax Big Box share price from Hargreaves Lansdown)
As you can see, substantial gains made in the 6 months after the tip. Then, of course, the decline to current levels.
As a REIT with a 5% yield then I think that the current - and back in January - levels are undervaluing Tritax. The higher levels of June and July look more reasonable to me. Thus I regard this current price level as an opportunity to invest before the correction to those higher levels happens again.
I Am Not Alone
The Telegraph's tipster, Questor, thinks the same:
Investing in online-focused retail stocks is not the only way to capitalise on the growth potential of ecommerce.
Tritax Big Box, a real estate investment trust (REIT), owns very large logistics warehouses ("big boxes") in Britain. Demand for these assets is likely to rise as retailers reposition themselves to accommodate a continued shift towards online sales.
The Investor View
Buying on the dips here, into a 5% yield and positioned firmly in the growth sector of retail commercial property looks attractive. A useful if steady buy.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.