The UK shopping centre investment market saw a 50 per cent drop in transactional volumes from £4.71bn in 2011 to £2.36bn in 2012, with most deals being done in the second half of the year. However, in 2013 investment volumes are set to make a dramatic return and increase by around the same amount, surpassing the average of the last five years, according to research from Colliers International.
Andrew Marshall, member of the Shopping Centre investment team at Colliers International said: “In 2012 the levels would have been considerably lower had it not been for a resurgence in the second half of the year where completions accounted for 69 per cent of the transactional volumes.
“The most significant vendors of property last year were the Institutions, which accounted for 64 per cent of all the sales, most notably Aviva which sold three schemes in Carlisle, Stevenage and Middlesbrough.”
Colliers International’s Shopping Centre Market Review states that the average lot size of the 34 centres that changed hands was £69.28m. However, these figures are skewed by the two large transactions; the sale of a 50 per cent stake in Meadowhall, Sheffield, which sold for £762.5m and Festival Place, Basingstoke, which sold for £280m. Excluding these two deals, the transactional volume of deals was £1.31bn with an average lot size of £41.03m.
Key findings include:
Rental growth: Forecasts have been revised downwards after an above average year of administrations has sapped demand and added to available space in the market. Rental values will continue to contract in 2013, by about 2 per cent, although we anticipate this decline to be at a slower rate towards the end of the year.
Development funding: The development funding market has shown some early signs of recovery with Mayer Bergman’s funding of Westfield, Bradford and British Land’s funding at Old Livestock Market in Hereford. Investors still remain very cautious of the leasing risk as there are continued fears over further retailer administrations and operational challenges.
Development pipeline: There were no new shopping centre openings in 2012 with only Trinity Leeds, adding 1 million sq ft, set to open in 2013. The total floorspace in the UK shopping centre development pipeline stands at 35.2 million sq ft, which is a 2.9 per cent increase since October 2011. Of the total development pipeline (2013-2018), only seven per cent or 2.4 million sq ft is under construction.
Investment pipeline: There are 11 (£912m) centres under offer and 15 (£851m) on the market. During 2012 there were six schemes withdrawn from the market, totalling £174m. Where schemes have failed to sell some may still be officially on the market and could be bought if the pricing was at an acceptable level. The value of schemes still on the market in addition to those withdrawn, make a combined total of all that failed to sell in 2012 of £1.025bn (21 centres), some 24 per cent of the total stock.
Summarising the outlook for the year ahead, Andrew Marshall commented: “We anticipate that there will be more loan sales to come in 2013 and expect debt buyers such as Oaktree, Blackstone, Kennedy Wilson, Cerberus and Lonestar to take control and offload the underlying shopping centre assets, bringing further supply to the market.
“Double digit yields have now become commonplace and are expected to continue, however, while there will be more retail failures in 2013, we do see yields ‘bottoming out’ at current levels. More stock will trade as an increasing number of private equity investors seek to take a position in the secondary market.
“Overall, we expect investment volumes to increase by around 50 per cent to £3.5bn in 2013, surpassing the previous five year average of £2.5bn, with yields remaining firm.”