Despite a backdrop of a general slowdown in retail investment transactions in 2017, UK supermarket investment has rallied in H1 with a total of £727 million of transactions so far this year at an average Net Initial Yield of 5.05%, representing a 20 per cent increase y-o-y, according to data from Colliers International’s Retail Capital Markets team.
H1 2016 saw £603 million transacted, all the more significant since this figure included the £230 million Phoenix portfolio which skewed the numbers for this period.
James Watson, Head of Retail Capital Markets at Colliers International commented, “Despite subdued retail investment activity generally, the food store market has recovered a large amount of ground and is proving increasingly popular with investors. Confidence has returned to the sector; retailers are beginning to take new stores again and we expect transactional volumes to be well ahead of last year. The grocery market is proving particularly resilient to the general uncertainty of digital retailing, with the Amazon/Whole Foods tie up being seen as a positive indicator that disruption by online operators is potentially more limited.
“There is still no sign of rental growth outside London, but we are starting to see some signs of stability in the occupational markets. Average lot sizes are lower and institutions in particular are acting with caution and being selective on income and assets. However, we anticipate more institutional activity in H2, with some larger lot sizes changing hands although lack of prime stock will continue to be an issue.
“Recent deals we have transacted have seen a significant depth of interest and pricing closing ahead of quoting terms, all of which point to a decent second half in 2017.
“Investors are continuing to seek out the stability that long-dated income from sound covenants offers, which is symptomatic of the wider political and economic picture in the UK at present.”