The UK supermarket sector is “re-booting”, according to MSCI, with investor type changing and operators shifting their trading approach.
The research firm said the retail sub-sector was attracting a “new generation of investors”, with private equity investors and overseas buyers showing more appetite for a sector traditionally dominated by institutional capital.
MSCI and Colliers International’s jointly published ‘UK Supermarkets Investment Report’ monitored the performance of 273 supermarket properties, with a combined value of £6.8bn (€8.6bn).
James Watson, head of retail capital markets at Colliers International, said the restructuring of the sub-sector’s investor base mirrors changes in the supermarket sector, which has seen a shift away from the giant stores of the 1990s ‘race for space’ expansion programmes towards smaller, grocery-focused stores.
Recent property returns are “historically lacklustre”, at around 2%, MSCI said.
However, new investors have kept the volume of transactional activity above the £1bn mark.
“There has been recent encouragement for the sector in some improved trading figures, and there are clear indications operators are beginning to find a way forward,” Watson said.
He said a “two-tiered market” had now emerged between prime and secondary stores.
“Whilst there is still demonstrable institutional appetite for prime assets, there is also demand for the more secondary product from private investors who are reassured by the covenant strength of the occupiers and the long-dated, RPI-linked income streams,” he said, adding that investors were seemingly unconcerned by Brexit fears.
The research notes that the RPI-linked leases that dominate in the sector are still a considerable attraction to investors, particularly with bond returns being at all-time lows.
