The shopping centre market in Q2 2015 has continued in the same strong vein as Q1, with 18 deals completed, accounting for £794 million of transactions.

The statistics for the half year now read as 32 deals transacted accounting for £1.634 billion. Interestingly, this is 47% down on the same time in 2014 where 41 deals were transacted accounting for £3.09 billion (the 2014 statistics included some large transactions including Bluewater, The Chimes Uxbridge and Westfield Derby).

That said there are some significant disposals coming through which will bolster the 2015 numbers including Dundrum, Festival Place in Basingstoke, and a stake in Merry Hill, Birmingham.

There are currently 28 shopping centres under offer accounting for c.£1.25 billion and 48 shopping centres in the market accounting for a further c.£2.24 billion.

Should the assets being prepared and those under offer/in the market transact this would make the total investment volume for the year in the order of £6.8 billion putting it on a par with 2006. We are also aware of a further c.18 sales being prepared, accounting for another c.£750 million.

It is also interesting to note that the average net initial yield achieved in shopping centre transactions has fallen from 8.02% to 7.21% year-on-year, this reflects the increased demand and popularity of the sector with investors.

^{Source: Savills Research}

Q2 has seen some extremely strong bidding on ‘London’ assets e.g.: Kings Mall, Hammersmith. The perceived rental growth and development potential saw competitive bidding to 4.25% NIY. The same theme came through on N1 Islington – currently under offer at 3.9% NIY to clients of CBREGi at £34m over asking terms. Both assets were ‘competitive bid’ situations.

Source: Savills Research

It is clear that the market now recognises the premium value attributed to "London". This is especially true where there are refurbishment/ redevelopment opportunities to add residential/office space or to reconfigure retail accommodation. The same is not true of the more secondary assets. We estimate around 40 of the 45 assets currently on the market are secondary in nature. An increasing number of these assets remain on the market because of vendors’ unrealistic pricing expectations, poor trade, geographical location, and weak expiry profiles.

Despite the positive yield arbitrage at 7.5%+ NIY, unless there is an attractive asset management angle, many of these assets are struggling to sell and are seen as ‘dry’.

^{Sources: Savills Research / IPD}

The debt markets continue to be buoyant with a surge in loan-to-value ratios (LTV’s) and increased use of mezzanine finance. As William Newsom highlighted in his annual report, there were 46 new lenders in 2014 with 50% of borrowers now looking for LTV’s of over 65%. Margins for prime assets are in the order of 1.25-1.3% over the 5 year swap and 225-250bps for good town centre dominant assets.

As we enter the summer months we expect to see yields continue to harden for the very best product, but given the quantum of secondary stock on the market these assets will need to be priced attractively to find a home.