Activity in the shopping centre investment market remained strong throughout 2015. At year end a total of 86 shopping centres had been traded, representing a capital value of £4.30 billion, above the long term average of £3.98 billion. The investment volume for Q4 2015 was £1.11 billion.

Notable transactions completed in Q4 2015 included:

■  Meadows Shopping Centre, Chelmsford for £46 million, reflecting a NIY of 7.75%. The purchaser was Benson Elliot.

■  Forge Shopping Centre, Glasgow for £83.6 million, reflecting a NIY of 6.95%. The purchasers were Pradera and Tristan Capital.

■  Monument Mall, Newcastle for c.£87 million, reflecting a NIY of 4.30%. The purchaser was Standard Life.

■  Lion Walk, Colchester for £76.5 million, reflecting a NIY of 6.00%. The purchaser was a client of CBREGi.

■  Festival Place, Basingstoke for c.£290 million, reflecting a NIY of 6.50%. The purchaser was a client of AEW.

^{Source: Savills Research, IPD}

Source: Savills Research

There are 13 shopping centres currently under offer, accounting for circa £1 billion and 20 centres in the market accounting for an additional £1.64 billion which will flow into Q1 2016.

Notable deals expected to flow into Q1 2016 include:

■  Grand Central, Birmingham for £345 million, reflecting a NIY of 3.50%.

■  Freehold stake in Metrocentre, Gateshead for £115 million, reflecting a NIY of 4.00%.

■  50% stake in Whitefriars, Canterbury, reflecting a NIY of 5.50%. ■ 50% stake in Bury St Edmunds, reflecting a NIY of 5.35%.

■  St Enoch, Glasgow for c.£225 million, reflecting a NIY of 6.50%.

■  The Lanes, Carlisle for c.£95 million, reflecting a NIY of 6.00%.

■  Friars Walk, Newport for £117 million, reflecting a NIY of 5.75%.

The average NIY for assets transacted in 2015 was 7.19%, compared to 7.65% in 2014, demonstrating that demand for shopping centres has remained strong and that there is a growing investor preference for higher quality prime / town centre dominant assets.

2015 really was a year of two halves. The momentum from 2014 pushed through into early 2015 with some notable prices being paid, specifically:

■  4.68% NIY for the Nicholson Centre, Maidenhead (without top ups) acquired by Vixcroft with Cheyne Capital, reflecting £35 million.

■  6.50% NIY for Telford Shopping Centre acquired by Orion, reflecting £250 million.

■  5.20% NIY for Grafton Centre, Cambridge acquired by L&G with Wrenbridge, reflecting £99 million.

■  6.02% NIY for Ayr Central acquired by M&G, reflecting £34.3 million.

■  4.25% NIY for Kings Mall, Hammersmith acquired by Schroders, reflecting £153 million.

■  3.46% NIY for W1 Shopping Centre, London acquired by Norges, reflecting £240 million.

■  3.90% NIY for N1, Islington acquired by clients of CBREGi for £171 million.

Source: Savills Research

As the year progressed vendors’ pricing aspirations increased and valuations “firmed up”. However, the “London Effect” was not reflective of the wider UK market. More stock came into the market, particularly at the secondary end as individual assets and portfolio sales, resulting in 47 secondary assets being available by September / October 2015.

Wider global macro-economic worries continued particularly in Asia with significant currency devaluations and wild stock market fluctuations. The early part of Q4 2015 saw secondary values move out 100 basis pointsand the Sovereign Wealth Funds pull up stumps on their UK investment programme to focus on domestic issues. This trend has continued to the year end. Much of the secondary stock has now been withdrawn and we are seeing much less activity from the Sovereign Funds in the second half of 2015. We suspect that they will cautiously return in 2016 but only for the very best assets.

We predict that the trend for super prime, prime and good town centre dominant assets will remain in 2016 as we return to a more “normalised market”. Secondary and tertiary yields have moved out c.100 - 150 basis points in the last 6 months and this has created issues with valuations which remain “historic”. In some instances the outward yield movement has been too aggressive, and has been reflective of the wider market and not asset specifics.

The REITs have now mostly balanced their portfolios and as such we expect to see fewer, bigger, more strategic plays from them in 2016, and perhaps some merger and acquisition activity?

Recent years have seen “stakes in centres” being sold down, we believe this will continue but at a decreasing rate. The market has changed to the extent that the Sovereign Funds are now focussed on much larger, core strategic holds and have exited / are exiting their smaller positions under £100 million in joint ventures. The issue for the remaining joint venture partner is who the new equity joint venture partner will be. In all likelihood this will be from funds under the management of the big fund management houses, such as LaSalle Investment Management and CBREGi etc. The issue of course is that their clients will not pay “double fees” and, as a consequence the new joint venture partners will only enter these assets on a straight joint venture basis.

As highlighted, we expect 2016 to return to a more “normalised market”. Revaluations at year end will help to bring pricing expectations back in line. We will see more selective disposals from all categories of the vendor spectrum and to that end we anticipate a healthy year of transactions in the £4 - 5 billion range. There remains strength and depth across the purchaser spectrum, over- renting is now for the most part behind us, retailers are trading profitably and the debt markets remain competitive.