Real estate investors spent £4.4 bn (€5.5 bn) to acquire 63 shopping centres in the UK during the first nine months of 2014, DTZ has reported.

Real estate investors spent £4.4 bn (€5.5 bn) to acquire 63 shopping centres in the UK during the first nine months of 2014, DTZ has reported.

Almost half of the transactions (32) with a combined total of £1.65 bn took place in the third quarter, smashing the £833 mln volume for the same period last year.

The most significant transactions in the third quarter included AXA Real Estate’s purchase of a 50% stake in Cabot Circus in Bristol from Land Securities for £268 mln at a net initial yield of 6.25% and the sale of the Hammersmith Broadway and Fulham Broadway shopping centres, which are rumoured to have transacted for a combined price of around £270 mln to the Malaysia’s Employees Provident Fund and CBRE Global Investors.

Another notable transaction in Q3 2014 was the purchase of East Kilbride Shopping Centre by Orion Capital Managers for a purchase price of £178 mln, reflecting a net initial yield of 6.75% and a 'very healthy' equivalent yield of 9.50%. DTZ advised the buyer on this acquisition.

Shopping centres currently under offer total £926 mln, including the Ashley Centre in Epsom which is under offer to CBRE Global Investors at £78.5 mln, reflecting a net initial yield of 6.00% and Fremlin Walk in Maidstone which has recently gone under offer to M&G for over £100 mln, reflecting a net initial yield of 6.00%.

Besides centres that have been sold, exchanged or under offer, there are currently 48 shopping centres being openly marketed totalling £1.65 bn. Three of the larger lot sizes include the Tiger Portfolio, the Praxis Mall Portfolio and LIM’s Brunswick Shopping Centre in London.

With stock under offer and on the market totalling around £2.58 bn alongside the £4.39 bn already transacted, 2014 is set to surpass the £4.45 bn of shopping centre transaction volumes recorded in 2013, having already smashed the long-term yearly average of £3.65 bn.

INVESTMENT DRIVERS
Investor sentiment and weight of money in the market has remained extremely strong in Q3 with the heightened demand and frustrated capital continuing to exert pressure on yields. Super-prime yields are currently at 4.50%, although DTZ sees this trend as stable. Prime yields have come in over the quarter, as demonstrated by the purchase of Palace Exchange, Enfield for £76 mln, reflecting a NIY of 5.00% and Hammerson’s purchase of LIM’s 40% stake in Highcross Leicester for £180 mln, reflecting a NIY of 5.50%.

Investors are now moving up the risk curve which has resulted in pressure on dominant secondary yields, currently at 6.75%/7.25% as exemplified by the purchase of East Kilbride for £178 mln at 6.75% as well as secondary yields, which are now trending at 7.75%/8.25%. Tertiary shopping centres are trending at 9.00% as demonstrated by the purchase of the Project Leopard portfolio in Q3 2014 by Edinburgh House and Cerberus Capital Management for a purchase price of £82 mln, reflecting a NIY of 8.75%.

Barry O’Donnell, head of shopping centre investment, said: 'The current catchphrase is distressed buyers, no longer distressed vendors. This may be slightly exaggerated but it is certainly becoming harder to buy than it was and there continues to be significant weight of money in the sector. The momentum will hopefully encourage more sales from NAMA, UK banks and loan books to meet the demand.'