Shopping centre investment

Q1 2014 saw Shopping Centre Investment turnover increase 36% on Q1 2013, rising from £1.4 billion to £1.9 billion. This was in 28 deals. The average initial yield in Q1 2104 was 7.94% compared to 8.9% in Q1 2013.

Notable transactions in Q1 2014 included the:

■ Acquisition by Valad of The Royals in Southend for £33.4 million from Orchard Street reflecting a net initial yield of 7.8%.

■ Acquisition by InfraRed and Hark of the Eastgate Centre Basildon for £88.6 million, reflecting a net initial yield of 7.1% initial.

■ Acquisition of Middleton Grange Shopping Centre Hartlepool and Four Seasons Shopping Centre Mansfield by Mars Pension Fund for a total of £53 million, reflecting a blended 8.9% initial yield.

■ Acquisition by Hines and HSBC of Liffey Valley Dublin for €284 million, reflecting a 7.72% net initial.

■ Acquisition by Legal & General of Overgate Centre Dundee from Land Securities for £125.3 million reflecting 7.4% net initial.

■ Acquisition by Orion Capital of Trinity Walk, Wakefield for £149.5 million reflecting 6.7% net initial.

■ Acquisition by Intu of Westfield Derby for £390 million reflecting 6.89% net initial and a 50% stake in Merry Hill Shopping Centre for £407.5 million reflecting a 5.21% initial.

Currently there are c.£500 million of deals under offer, a further £1.1 billion in the market and another billion pounds likely to come to the market in the coming months.

2014 has continued where 2013 left with increased investor activity and demand for the sector from all quarters from both private equity, property company, opportunity funds, institutional and sovereign wealth funds. At this early stage in the year we would therefore estimate that total transaction volumes for the year could total over £4.5 billion compared to the long term average of £3.8 billion.

The notable trend has been the increase in activity from the institutional investors. This is largely driven by the continued increase of inflows, improvement in the wider market sentiment, the quality of assets available and the weight of money. We continue to see a great deal of new entrants coming into the market backed up by increased supply, quality, cost and loan to value of debt.

This improvement in market sentiment is supported by increased confidence in the retailer outlook.

We are seeing a continued reduction 
in the yield gap between prime and tertiary and also in respect of the prime and secondary of the town centre dominant secondary schemes, in the right towns. This means the right assets in the right town at the right lot sizes are been eagerly contested with the opportunity funds having to lower their return hurdles.

We are also starting to see a reduction in the vacancy rates in a number of schemes and investors are keen to 
take the benefit of these vacant units in order that they can stamp their mark through active asset management to reduce this vacancy in the shorter term and add value.

As we saw in 2012 and 2013, the increased trend of shopping centres forming part of a number of high profile loan sales has continued. 
Loan sales are acting like a speed bump in the supply of stock to the investor market, as in many cases these loans are bought to sell the assets off in the short term. The area of the market that continues to have the least amount of market demand relates to those assets with a short weighted average unexpired of less than four years and investors are still pricing in considerable risk. In some case these assets have remained unsold.

Taken from
UK Shopping Centre and High Street Bulletin Q1 2014