DEALS UK shopping centre transactions plummet 90% in Q3

In its latest update on UK shopping centre investment, C&W noted that transaction volumes for the first nine months of this year were 53% down on the same period last year and the lowest level since 2009.

But the advisor added that there are currently £1.5 bn of assets are under offer. With retail funds re-opened and sentiment improving, transaction volumes could reach the 2012 level of £2.8 bn by year-end, the broker added. The sector remains attractive as retail sales in August were 5.9% higher than the same period a year ago, continuing 41 months of consecutive monthly year-on-year growth.

Barry O'Donnell, head of UK shopping centre investment for C&W, said: 'The political and financial volatility following the EU referendum resulted in extremely low shopping centre investment volumes in the last quarter. However, investor confidence is improving with renewed overseas interest coupled with weak sterling and a softening in yields bridging what was a marked gap in seller and buyer expectations during the summer.

'There are a couple of chunky deals under offer which will, in my view deliver a much healthier transaction volume than the paltry Q3,' O'Donnell said.

Deal flow
The Q3 investment volume comprises just three transactions, with a decidedly domestic rather than a cross-border element. Two of the transactions involved UK REITs selling off smaller regional assets.

One deal accounted for the majority of the Q3 volume. This was UK REIT Hammerson selling Manor Walks in Cramlington in the northeast of England to Northumberland County Council for £78 mln, reflecting a yield of 7%. British Land, the UK's second largest REIT, captured the second spot with the sale of Lisnagelvin shopping centre in northern Ireland to Edinburgh-based asset and development manager Cordatus for £17.2 mln, or a yield of 6.9%. In the third transaction LaSalle IM sold the Red Rose Centre in Sutton Coldfield in Birmingham to Birmingham City Council for £10.4 mln, reflecting a 7.4% yield.

There was more action to speak of in the first half of the year in the lead up to the referendum on whether the UK should remain in the EU or not, with UK REITS and Birmingham at the epicentre, according to data compiled by PropertyEU Research. In what may transpire to be the retail deal of the year, UK REIT Intu Properties acquired the 50% it did not already own in Merry Hill shopping centre from Queensland Investment Corporation for £410 mln. 

Staying in Birmingham - the largest UK city outside of London - Hammerson, another heavyweight London-listed REIT, purchased the shopping centre at the Grand Central train station redevelopment in the centre of the Midlands city from Birmingham City Council for £441 mln in January, before forming a 50:50 joint venture with Canadian pension investor CPPIB.

NewRiver Retail, a mid-sized UK REIT, carried out two significant investments in the first quarter of 2016. In January, NewRiver exchanged contracts to acquire the Neptune regional shopping centre portfolio for £92 mln, or a 8% yield, in January, and in March the company completed the purchase of the Broadway shopping centre and Broadway Square retail park in south east London for 120 mln, reflecting a yield of 6.7%. 

Consumer confidence
Jonathan Rumsey, C&W head of UK retail market analysis, expects the investment market to pick up in the months ahead. 'Despite immediate falls following the referendum result, consumer confidence has returned to pre-Brexit levels and official retail sales data remains strong. We do, however, expect increased supply chain costs to filter through to shoppers next year which could affect retail sales growth.

'It's also notable how reliant sales have been on the public sector. Councils have purchased seven schemes so far this year totalling £271 mln. That represents 18% of total investment spend and 23% of the total number of schemes.'