Investors will become more selective in their targeting of assets while there will remain a healthy supply and demand balance on the occupational side, according to JLL Retail.
While the retail market has seen a decrease in investment volumes following the EU referendum result, the UK remains the largest retail investment market in Europe in H1, attracting c.21% of volumes.
Overseas money is expected to form a large part of investment into the shopping centre market. A recent survey of overseas investors undertaken by JLL said that 72% see the fall in sterling as an opportunity to invest in the UK.
The largest Q2 single asset shopping centre transactions in the UK were QIC Real Estate’s sale of Merry Hill, Dudley, to Intu Properties and Merlin UK’s sale of Broadway Shopping Centre & Broadway Square, Bexleyheath, to New River Retail.
Prime and secondary shopping centre yields have become increasingly polarised. The secondary market has been dominated by asset managers and private equity joint venture buyers but demand has cooled.
The UK’s shopping centre development pipeline is marginally higher than the European average, but remains focussed on extensions and redevelopment. Notable schemes being redeveloped include the St James Centre in Edinburgh, the Westgate Centre in Oxford as well as many of intu’s regionally dominant schemes. The shopping centre development pipeline accounts for 2.4% of total stock; alongside a low prime retail vacancy rate, it will mean a healthy supply and demand balance is maintained, despite the threat of e-commerce.
Paul Marshall, director, UK shopping centre leasing, JLL, said: “We have seen a rise in retail brands taking up quality space across the UK this year. Misguided took its first UK store (currently an online retailer) in Westfield Stratford and the JD Sports took a 28,000 sq ft space in Merry Hill, making it the largest store globally, outside of London.”
James Waldock, director, UK Shopping Centre Investment, JLL, said: “The market continues to suffer from a lack of fresh stock with a number of vendors preferring to defer potential sales until economic and political uncertainty post the EU referendum settles down.
“Strong occupational fundamentals and a large weight of private and overseas equity targeting the market is a positive theme but there remains a perception that investment in the current climate should be at a discount – the reality is there are very few forced sellers. The result has been reduction in transaction volumes.”
Fraser Bowen, head of UK retail capital markets, JLL, added: “Private equity buyers are still targeting the secondary market and benefiting from cheap and readily available debt. Debt markets remain buoyant with attractive loan to value ratios and increased use of mezzanine finance.”
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