EUROPE - UK REIT British Land has said it will invest in locally dominant retail assets amid increased polarisation between prime and secondary in the sector.
Although head of retail Charlie Maudsley did not rule out investment in "good-quality secondary with good fundamentals", the focus of the firm's AUM £9.9bn (€11.3bn) retail portfolio will remain on prime amid significant lease expiries in secondary retail.
Maudsley pointed to the consistent corporate outperformance driven by portfolio diversification.
The REIT invests across department stores, high street assets, superstores, shopping centres, fashion parks and retail warehouses.
Speaking at an investor event Friday, he said the firm - whose shareholders include pension fund manager APG, the Norwegian public pension fund and Singapore sovereign wealth fund subsidiary GIC - would balance income and capital value growth and recycle capital where values were not justified by rental prospects.
Identifying an overall migration trend to prime space, Maudsley said occupiers would demand locally dominant and accessible property, affordable rents, adaptable space and an environment characterised by "the right mix of complementary retailers and leisure".
John Maddison, senior asset manager for out-of-town retail, said the firm would focus on enhancing the retailer mix through subdivisions and mezzanine floors aimed at increasing rental growth.
British Land is the UK's largest retail park owner, with £4.4bn in assets under management and a vacancy rate of less than 1%.
Bryan Lewis, British Land head of superstores, which make up 22% of the firm's portfolio, described those assets as "defensive today, but with growth tomorrow".
Pointing to an initial 5% yield, he emphasised strong covenants and average remaining 17-year lease lengths.
Having disposed of food stores valued at £111m, the firm will focus on strong demand for new assets from all five major UK retailers.
In the meantime, historically low levels of prime supply provided an opportunity for the firm to add incremental value, according to Richard Wise, head of retail development - despite uncertainty over planning policy.
He said the fact British Land had had little exposure to pre-recession UK developments would contribute to making it the "development partner of choice" now.
The firm will focus on urban projects worth £50m-250m in an attempt to "buy control today to develop tomorrow".