According to the latest IPD/Colliers International UK Supermarket Investment Report, even though it was a problematic year for supermarket operators, this did not deter investors continuing to buy into long-term, index-linked income.
In 2013, supermarket investments provided a total return of 11 per cent year-on-year (y/y). This was ahead of the return for Standard Retail (+9.6 per cent) and All Property (+10.5 per cent).
Average net initial yields are around 4.75 per cent but it is the perceived security of income that is of greatest attraction to investors. IPD analysis of just under £6bn of assets shows that the average unexpired lease term on a supermarket is just over 20 years – almost 12 years longer than the Standard Retail average.
Colliers International Head of UK Retail Investment, James Watson, comments: “In a continued environment where gilts remain relatively unattractive, interest rates are low and bonds are low-yielding, investor demand for supermarket investments is set to continue.
“There is a considerable weight of money looking to buy these assets and we are now seeing a broadening buyer base. Although institutions continue to dominate the market - accounting for 77 per cent of all purchases in 2013 - overseas buyers have begun to have an impact and accounted for 11 per cent of acquisitions last year.”
Phil Tily, Executive Director at IPD comments: “In recent years, the performance of supermarkets across the UK has been consistent, deviating from the broader market trend of the South East outperforming the rest of the UK.
“Investors perceive them as being very safe investments and this is borne out by the sector’s impressive risk score for 2013 of 92, which was significantly higher than standard retail, which scored 72.”
While the supply of supermarket assets has been diminished by the more conservative expansion plans of the major operators, the research identifies plans for more than 5 million sq ft of new supermarket development during the coming year.
A general retreat from the large-scale ‘Death Star’ stores which created substantial investment opportunities has coincided with a push into smaller, neighbourhood convenience stores as retailers look to address geographic gaps in their representation across the UK.