Shopping Centres
After a slow start to Q1, the market has begun to pick up pace, with approximately £900m of deals transacting in the first quarter.
By the end of Q1 activity in the sector has gathered momentum, with increasing levels of stock on the market or rumoured to be coming. Demand remains resilient for both single assets and also at a portfolio level.
The weight of money continues to be the key driver of the market, with pressure to spend coming from both private equity investors and the UK institutions, as well as appetite from property companies and REITs.
With assets expected to sell well throughout the year, it will be interesting to see how market pricing responds in Q2 to the available stock, and whether yield compression continues further throughout all sectors of the market.
High Street
The High Street market continues to suffer a lack of institutional quality stock. Whilst there are many requirements for High Street assets, most are seeking fairly rented, strong covenants in prime pitches, the consequence of which has seen highly competitive bidding and further yield compression for prime stock.
The focus on prime assets, particularly of larger lot sizes, has created a significant yield gap between prime and secondary asset, where properties are judged to be secondary in terms of location (either pitch or town), over rented or offering poor covenants. Although this pricing is likely to compress in time within the context of the wider market, currently this area offers investors more relative yield.
The high street continues to be exposed to over rented properties and it will be interesting to see how the market reacts to the significant changes in the occupational market as 10 / 15 year leases from the early / mid 2000s now reach expiry.
Retail Warehousing
In line with the wider market, Q1 saw a slow start to the year in terms of overall retail warehousing investment volumes, with approximately £315m transacting.
However, a significant number of high profile schemes are now currently being marketed, including: Morfa Shopping Park, Swansea; Brookfield Shopping Park, Chesunt; Central Six Retail Park, Coventry; and Withybush Retail Park, Haverfordwest.
We envisage a larger transactional volume in Q2 as the weight of institutional money continues to seek prime stock in the market. In particular, we expect destination retail locations and convenience led retail to command the most interest.
Foodstores
Q1 saw one of the sectors most significant recent transactions, with British Land selling its 50% interest in a joint venture portfolio of 21 standalone food stores to Tesco. The deal also saw British Land acquire Tesco’s 50% interest in two joint venture portfolios, predominantly comprising Tesco anchored retail parks and shopping centres.
Investor sentiment for food stores continues to weaken with concern centred on larger over rented stores in secondary locations. As a result we expect to see pricing for all but prime fairly rented foodstores continue to soften.
Many of the institutional buyers of foodstores are standing back from the market, which is creating opportunity for some relatively new entrants to the sector who are taking advantage of softer pricing, including foreign institutional investors, privates and property companies.
View the full Retail Bulletin - Q1 2015.