Institutions and stakes dominate 2017 shopping centre investment, says Savills

By Paul Norman - Friday, January 05, 2018 14:50

Investment in shopping centres and factory outlet centres came in at £2.135bn in 2017, as institutions replaced sovereign wealth and private equity as the principal buyers, reports Savills.

Investment into UK shopping centres totalled £1.673bn in 2017, down 44% on the 2016 total of £3bn, reports Savills.

Institutional investors were the most active investors in the sector, accounting for £718m of the total volume.

The firm predicts increased appetite for redevelopment opportunities as well as improved positive sentiment around the retail sector driving demand for well-located centres with rebased rents and robust income characteristics in 2018.

Last year 39 shopping centres were transacted with an average shopping centre lot size of £43m according to Savills. There were five transactions over £100m that accounted for a total for £718m (43% of volumes) whilst stakes in shopping centres proved popular in 2017, accounting for £552m (33%) of transactions.

Key transactions in the sector included Frogmore's acquisition of the Stratford Centre, London for £141.5m and Royal London's acquisition of a 7.50% stake in Bluewater for £155m.

The firm notes that the factory outlet sector enjoyed a buoyant 2017 with £462m transacted across six deals, a significant increase from the circa £31m transacted in 2016.

Institutional investors were the dominant purchasers of shopping centres, accounting for £748m  (45%) of transaction volumes by capital value across nine deals. The institutions were also the most active vendors of shopping centres, disposing of 17 schemes with a capital value of £783m.

Mark Garmon-Jones, head of shopping centre investment at Savills, said: “2017 was an intriguing year with institutions and the property companies dominating the market to the surprise of many. There were no acquisitions by sovereign wealth funds or private equity investors. Both of these equity sources have been impacted by the EU referendum and concerns over the US retail market. The latter is surprising given the significant disparities between the UK and US; namely the relative under supply in the UK market compared to the US, with the retailer omni-channel market here far more mature and responsive than the US.”

At the year-end there was in excess of £1.2bn worth of shopping centres under offer in the UK and just over £1.5bn in the market, over half of which are comprised of Bluewater stakes.

Garmon-Jones added: “A more positive Christmas trading period from the retailers than the press had anticipated should encourage investors that the right schemes are worth buying with their rebased rents, right fundamentals and income characteristics. There will also be opportunities to repurpose and redevelop some schemes where demand for alternative uses is greater. However, in some cases, this will be reliant on a narrowing of the gulf between valuations and market sentiment.”

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