SMALL independent

retailers are re-establishing themselves in the

confectionery, tobacco and newsagency (CTN) sector.

Demand for local stores, post offices, and newsagents is showing a strong recovery across Scotland, according to James McKay, of agents Christie & Co.

''Interest rates appear stable and we may at last see a marked increase in prices being paid,'' he says.

He argues that the withdrawal of John Menzies from the CTN market further increases the fragmentation in the sector.

''Perhaps this has become more of a niche market. Certainly independents prepared to specialise have started to fight back and there are now many good CTN operators with low borrowings who are making a very good living.''

Meanwhile, the local convenience store sector is developing into a two-tier market with the big multiples fighting over the high-turnover larger-scale outlets, but leaving mid-range businesses with turnovers of #300,000 or so open to the independents.

''In many cases purchasers are seeking to acquire businesses with some growth potential, either by improving or extending the range, increasing the hours, or simply providing a better service,'' says James McKay.

After a period of low demand in the early 1990s, competition for post offices is becoming intense - frequently driven by the desire of purchasers for a lifestyle business in a rural area.

''Purchasers should be in a position to move quickly and should have sorted out their funding before viewing properties. If you are too slow off the starting blocks once you have found the right business you will miss out,'' he says.

Weekend viewing has become a big feature of this market, with would-be buyers prepared to travel hundreds of miles, including overnight stays, to view properties. The good news for buyers is that, despite the improvement in the retail market since the middle of last year, prices have not shown significant increases.

''It is only now that we are beginning to see significant capital growth. With values still historically low, very good return on capital invested is still available - and with growth predicted for the rest of the century, perhaps now is a good time to buy,'' says James McKay.