31.01.2012An increase in the supply of prime assets and the moving out of pricing for secondary assets will be the main features for the Shopping Centre Investment market during 2012 according to Colliers International. With a further tightening in the availability of debt, as an increasing number of banks state they are withdrawing from commercial lending, the market will increasingly be left to cash purchasers, namely those institutions looking for high income returns and private equity buyers prepared to take a gamble on debt financing after purchase. As the banks start to unload more stock, by way of receiverships, consensual sales and loan portfolio sales, pricing for secondary assets is likely to move out further in 2012, with double digit yields on transactions becoming more commonplace. Colliers International’s research also concluded: Yields sharpened slightly in 2011 with All Property equivalent yields moving in by 20bps from 7.4% in 2010 to 7.2%. Albeit improving, Shopping Centres are predicted to have underperformed the market with equivalent yields reaching 8.45% (2010 8.58%). Colliers forecasts indicate that rental growth will continue the negative trend of the last three years, currently at -2.7% in 2011, and will not return to positive territory growth until 2013. Fall out in the second half was noticeable with only 30% of the year’s deals being completed and 23 centres (£1.42bn) still on the market or having been withdrawn. André James, Head of National Investment at Colliers International commented: “The most striking feature of the market in 2011 was the fall in activity in H2. The deepening economic crisis in the eurozone and concerns about the number of retailers falling into receivership undermined confidence in the sector. “Anecdotally, yields on secondary assets moved markedly in the last quarter. This was not evident in the deals that completed, although many of them had price adjustments to reflect ‘market movement’, but it was reflected in investor sentiment.” “As sovereign wealth capital remains focused on the UK for its ‘safe haven’ qualities, having largely fulfilled their central London office requirements, their attention will increasingly turn to the best quality retail assets. As a result, we see an increased supply of prime assets, predominately from the REITs endeavouring to capture a slice of sovereign wealth capital.” The UK shopping centre investment market saw a 29% increase in transactional volumes in 2011 compared to 2010; the value of completed and unconditionally exchanged transactions increasing from £3.51bn to £4.53bn in 2011. The average lot size of the 53 deals was £85.6m. However, these figures are skewed by the two large transactions of The Trafford Centre in Manchester, which sold for £1.6bn, and Westfield Stratford City which sold for £871.5m. Excluding these two deals, the transactional volume of deals was only £2.06bn with an average lot size of £40.4m. 70% of the year’s completed deals were transacted in the first half, with the second half seeing a marked downturn due to changing sentiment attributed to the general economic uncertainty exacerbated by the eurozone crisis. A similar trend was seen in the debt market which became increasingly difficult to source as the year unfolded with cash buyers able to capitalise on opportunities presented by vendors who had to sell.