Investment in UK shopping centres has reached its highest level in nine years, according to the latest research by CBRE.
Investment in UK shopping centres has reached its highest level in nine years, according to the latest research by CBRE.
In 2014, £5.6 bn (€7.3 bn) of investment transactions were completed in the UK shopping centres, an increase of 33% on the £4.2 bn transacted in 2013, and well above the ten-year average of £4 bn per annum. Investment activity has not been as high since 2005 when £8.5 bn was transacted.
2014 saw some landmark transactions with the largest deal being Land Securities’ £656 mln purchase of Lendlease’s 30% stake in Bluewater. Lendlease, advised by Morgan Stanley, sold their stake with full asset management rights, to Land Securities, advised by Cushman & Wakefield, reflecting an initial yield of 4.1%.
Other notable transactions include:
· The Tiger Portfolio. Lonestar and Ellandi, advised by CBRE, acquired this portfolio of eight shopping centres from Rockspring for £265 mln with a net initial yield of 7%
· The Swallowtail Portfolio – RBS sold this portfolio of seven shopping centres, the largest part of which was sold to New River Retail advised by CBRE for £140 mln, an 8% initial yield. Savills advised the vendor.
BUYERS
Investor interest in the retail market continued to strengthen in 2014 with the breakdown of investors mirroring that seen in previous years, REITs accounted for 36% of the market across 10 deals with an average lot size of around £200 mln. UK and overseas institutions made up 37% of the market in 21 transactions (a smaller average lot size of around £100 mln). The remaining 27% of the market was made up of private equity buyers (15%), property companies (7%) and opportunity funds (5%).
UK buyers were by far the most active, dominating the market by purchasing just over of 70% of stock. Asian Investors accounted for 13% of buyers with North American and European buyers also featuring, 10% and 7% respectively.
Rhodri Davies, head of Shopping Centre Investment at CBRE commented: “2014 has seen strong demand for shopping centre investment. The improved economic outlook has boosted confidence that the worst of the retail failures are behind us and an increased appetite for space among retailers is likely to drive rental growth. These factors have helped grow the investor pool and volume of money attracted to the sector. We expect 2015 to match, if not surpass, the numbers seen in 2014.”
YIELD COMPRESSION
The strength of demand in 2014 led to a tightening of shopping centre yields across the board. Over the last few years, the Prime sector has seen the greatest yield compression due to increasing demand among purchasers. As a result average prime yield shifted to 4.75%, substantially below the long-term average (LTA) of 5.70%.
The Best Secondary category saw some of the discount to prime being eroded in 2014, with an inward shift of circa 100 basis points in the past 12 months to 6.00% (LTA 7.00%).
The Secondary sector has also been pulled in, with a significant positive movement to 7.25% (LTA 7.60%). A proportion of this secondary shift in yield appears to reflect the continued rebasing of rents, where the initial yield is tracking closer to the real historic equivalent yield of the scheme.