UK – Investors targeting UK supermarkets should focus on bricks and mortar as well as lease lengths, according to James Watson, head of investment at Briant Champion Long.
Speaking at the launch of the IPD/Briant Champion Long UK supermarket investment report published this week, IPD head of research Greg Mansell pointed to investors increasingly preoccupied with lease length and tenant quality, rather than location.
But Watson urged investors to "consider the asset".
"Investors are buying on the basis of the lease, but bricks and mortar is more important than ever – especially for open-market reviews," he said.
"Size, catchment and competition should all come into it. It's old-school property investment.
But some investors consider it more than others."
Mansell acknowledged that, "contrary to conventional wisdom", performance from 2008-12 had been driven by investors' focus on leases, rather than asset quality.
However, he said that, in contrast to other types of retail, the fact supermarkets were relatively homogeneous in terms of lease terms and covenant strength would make assets' attributes "the deciding factor".
The average unexpired lease term on a supermarket is 22 years, compared with 13 years for the rest of standard retail.
According to IPD, supermarkets outperformed standard retail last year with a total return of 6.1% compared with 2.4%.
The report, based on a sample of 214 assets valued at £5bn (€5.7bn), found that, although prime assets with long leases were still top performers last year, long-lease secondary outperformed short-lease prime.
Meanwhile, BCL partner Matthew Hobbs pointed to an increasing polarisation of values between strong and weak locations – characterised by undersupply rather than by the north/south divide evident in other asset classes.
Specifically, he pointed to growth in the convenience sector and smaller supermarkets driven by austerity-era consumer patterns focused on "little and often" shopping.