Investors eye up out-of-town shops as Britons click-and-collect

* Click-and-collect can benefit large store format

* Retailers adding larger stores to portfolios

* Large store property deals jump in 2014

* Retail warehouse total returns up 7.1 pct in Q4 2014

* Consultants expect rents to rise

By Esha Vaish

April 1 (Reuters) - Investors in UK commercial real estateare snapping up large out-of-town shops to capitalise on therebounding economy and a trend among online shoppers toclick-and-collect.

The growing popularity of e-commerce has hurt prospects forsome retail investments, but out-of-town warehouses are expectedto outperform and provide steady returns even as the proportionof online sales grows.

Record low interest rates, higher employment and animproving housing market are enticing more Britons to shop andthe prospect of higher yields has enticed investors back intoretail property, where returns have until recently, lagged thosein other commercial property classes.

But shopping preferences have shifted. More Britons areordering goods online and, frustrated with inconvenient deliveryslots, are collecting their purchases in person.

"Out-of-town retailers are able to capitalise far moreeasily on click-and-collect as people want to drive to the frontdoor in their car," said Andrew McGregor, head of leisure andout-of-town retail at real estate consultancy Knight Frank.

Out-of-town locations also get more of a boost from abuoyant housing market as that is where most retailers sellingfurniture and household electricals are based.

Retail warehouses, unlike mega-sized distribution warehousesout of which e-commerce and delivery companies function, arestandalone units or purpose-built parks, often located on thefringe of or just outside towns. In 2014 the average sized unitwas worth 34 million pounds ($50 million).

Retail warehouse property deals worth 2.54 billion poundswere struck last year, up from 2 billion pounds in 2013, datafrom real estate consultant Savills Plc showed, and withinvestment funds the buyers in 65 percent of deals.

"We think the growth prospects for (retail warehouses) areexcellent, with rents offering good value compared to citycentres or shopping centres," said Alice Breheny, head of globalresearch, TIAA Henderson Real Estate.

TIAA Henderson's billion-pound UK Retail Warehouse Fundsecured an extension to run until December 2021 after all itsunit holders, comprising of UK and European institutions,elected to continue the fund, seeing good growth prospects.

Multi-channel retailers are increasingly looking to addwarehouses to their property portfolios.

Next Plc, which sells clothes and furnishings viastores, catalogues and online, intends to add about 350,000square feet of net new space in 2015 and says about half of itsonline orders are picked up in shops using a click-and-collectservice.

The company said 75 percent of the stores it opened in theyear ended Jan. 31 were large, out-of-town ones, and said thatwas a larger percentage than was normal.

White goods and non-food retailers Dixons Carphone Plc's Currys and PC World and Home Retail Group Plc's Argos are opting for fewer, but often larger, stores, closingless profitable ones and keeping those that allow them to takeadvantage of the trend for click-and-collect.

At Argos, which sells 20,000 products ranging from furnitureto electronics, 80 percent of those ordering via the internetopted for its 'Check & Reserve' service in the eighteen weeks toJan. 3. (http://bit.ly/1CcTlm9)

"More retailers are saying to us that these locations aregood for click-and-collect and very good for making it easy forcustomers to return goods," said Mat Oakley, director of Savillsresearch.

The increase in the number of people visiting out-of-townsites was the highest amongst all retail locations in February,according to a report by the British Retail Consortium andcustomer counting services provider Springboard.

Diane Wehrle, retail insights director at Springboard, saidout-of-town sites were gaining in popularity and part of thereason for that was the growth in click-and-collect andplentiful, free parking at these locations.

Competition, though, is fierce between funds wanting to grabprimary assets - those newly built or refurbished retailwarehouses in prime locations with strong tenants. This isputting pressure on the yields on those assets, forcing many tolook for lower quality property assets.

Total investment returns from retail warehouses were up 7.1percentage points to 14.5 percent by the fourth quarter of 2014on an annualised basis, data from index provider MSCI Inc shows.

That compares with a rise of 6.2 percent in returns onstandard retail real estate assets, which include most shops andsupermarkets.

While online only retailers in Britain have been growingfast, the popularity of click-and-collect is also likely toencourage more of them to test physical stores - an outcome thatcould further boost retail warehouse values.

The click-and-collect market is set to more than double by2017 according to retail research firm Planet Retail in a reportpublished in 2014, with a third of the top 50 retailers in theUK yet to offer the service.

($1 = 0.6749 pounds) (Editing by Elaine Hardcastle)