Indicative Prime Yields (NIY / %)
Q3 2018
Q2 2019
Q3 2019
Prime
5.00
5.50
6.00
Investment into shopping centres picked up slightly over Q3 2019, with transactions totalling £287.4m across six deals. This represents a 26.6% increase on Q2, and 359.8% year-on-year, although the latter reflects low base effects as Q318 was one of the worst quarters on record (£62.5m).
Local authorities have emerged as key investors as they look to redevelop underperforming shopping centres. Councils have invested over £432.0m since the start of 2018, with Stockton Council alone making two deals in 2019. Further deals are set for completion in Q4, including Trafford Council's purchase of Stretford Mall and Altrincham's Stamford Quarter in a combined £48.0mn deal. Demand for residential-led, mixed-used schemes and retail repositioning will continue to act as a lifeline for shopping centre investment.
Intu Properties completed the sale of a 50% stake in its Derby shopping centre to Cale Street Investments, backed by the Kuwait Investment Office, for £186.3m. The purchase price reflects a total value of £372.5m for the 1.3m sq ft centre - a 3.9% discount on the £387.5m Intu paid to Westfield in 2014. The deal is part of Intu's broader strategy to reduce its debt load. Intu will continue to manage the centre on behalf of the joint venture.
Address
Price (£ m)
Yield (%)
Purchaser
Vendor
Date
Intu Derby (50%)
186.3
6.60
Cale Street Investments / Kuwait Investment Office
Intu Properties
Jul 19
Cameron Toll Centre, Edinburgh
38.3
8.65
Franklin Templeton Investments
Oaktree Capital / Hunter AM
Castlegate, Stockton-on-Tees
13.8
9.50
Stockton-on-Tees Borough Council
Angelo Gordon / Ellandi
Sep 19
Investment into retail warehousing moderated in Q3, totalling £311.2m, down 14.7% on Q2. While activity was steady, with the number of deals (28) only slightly below the ten-year average, the sale of Abbotsinch Retail Park in Paisley, Scotland was the only transaction over the value of £50.0m in Q3.
That said, with yields rising 100bps since Q3 2018, we are seeing greater interest from opportunistic investors. Retail parks have a high proportion of occupiers selling products that consumers prefer to inspect before buying, making them less exposed to the rise of e-commerce. Retail warehouses also hold repurposing potential, with their storage capacity and urban proximity ideal for final-mile logistics. Demand for retail parks is likely to pick up over the coming quarters, especially for rack-rented assets that look underpriced.
A joint venture between NewRiver and BRAVO Strategies III agreed to acquire Poole Retail Park in a £44.7m deal, reflecting a 8.00% NIY. The retail park is located between Bournemouth and Poole and comprises 14 units and 208,000 sq ft of space. Retailers in situ include: Next Home, Homesense, Boots, DW Sports and Home Bargains.
Key Deals
Abbotsinch Retail Park, Paisley
67.0
7.80
Ashby Capital LLP
Hammerson Plc
Poole Retail Park
44.7
8.00
NewRiver / PIMCO BRAVO
LS Poole Retail Ltd
St James Retail Park, Knaresborough
33.0
6.25
Private Investor
Aviva Investors
Aug 19
Open A1
5.75
Bulky Goods
6.50
Investment into the high street disappointed in Q3, with £108.2m transacted over the period, making it one of the worst quarters on record. We have moved out our indicative prime yields by 25bps this quarter to 5.00%.
In a bid to reignite investment and support the regeneration of high streets, the government committed an additional £325.0m to the Future High Streets Fund in July, taking the overall fund to £1.0bn. Over 100 town centres have been shortlisted to benefit, primarily in periphery locations which have been heavily impacted by structural changes in retail such as Blackpool, Plymouth and High Wycombe.
Demand still exists for prime units in major retail hubs, or affluent towns which are occupied by strong covenant strength retailers.
39-43 South Street, Romford
14.0
5.70
Undisclosed
Fortress Investment
4-6 Clarence Street, Kingston-upon-Thames
9.8
5.25
Amsprop Ltd
Aberdeen Standard Investment
40-41 High Street, Chelmsford
7.0
7.63
Worshipful Co of Grocers
UBS Asset Management
4.25
4.75
Foodstores remain the most resilient retail subtype. Investment totalled £320.1m in Q3, up 55.0% year-on-year. Prime yields for good quality, long-leased stock are holding firm at 4.25% for the eighth consecutive quarter.
With a non-discretionary offering, foodstores are generally better positioned than other retail assets to weather any drop-off in demand. Major grocery players are evaluating their real estate portfolio, as consumers shift away from traditional supermarkets in favour of discounters and convenience formats. Aldi plans to invest £1.0bn in opening over 100 new stores over the next two years, focusing on Greater London. Sainsbury’s recently announced a five-year plan to open 110 convenience stores, while closing 80 of its larger stores (including Argos).
Cambridge has emerged as a bright spot for retail investment. The £51.4mn purchase of a Tesco Superstore in September 2019, reflecting a 4.5% NIY, is the second major foodstore deal in under 12 months, and brings annual investment volumes in the area over £100m.
Waitrose, The Podium, Bath
69.8
4.07
DTZ Investors
ACAI Group
Aug-19
Sainsburys, Flintoff Way, Preston
54.4
5.10
Supermarket Income REIT
Legal & General Property
Tesco Superstore, Newmarket Road, Cambridge
51.4
4.50
Cambridgeshire County Council
Orchard Street Investment Management