Annual investment in shopping centres is predicted to reach £4.3bn, falling short of 2014’s nine-year high, according to research from CBRE.
While UK shopping centres enjoy their annual Christmas sales pick-up, total investment for 2015 is set to drop 23 per cent below 2014’s volume of £5.3bn.
One explanation for the dip is the lack of a ‘super regional’ transaction, usually favoured by REITs – which this year made up a very small part of the market.
Private Equity has dominated the landscape in 2015 accounting for 46 per cent of all acquisitions across 26 transactions. This contrasts with previous years when purchasers have been evenly split across REITs, Institutions and Private Equity.
So far this year, UK Institutions have made up 26% of the market in 13 transactions. Major deals have included Islington’s Angel Shopping Centre and Central London’s West One, acquired by Norges for £240m.
Tim Williams, director of retail capital markets at CBRE, said: “There are still key deals worth in excess of £600m set to complete before the end of the year including Grand Central in Birmingham and Festival Place in Basingstoke.
“While the forecast for total investment is healthy, we won’t be seeing the sort of volumes we saw in 2014.
“This year we’ve also seen a shift in buyers with Private Equity funds dominating as they look to crystallise profits made over the last few years, where they’ve benefitted from significant yield compression.”
Despite total volumes being down, demand for Prime continues at a pace and in recent years the Prime sector has seen significant yield compression due to increasing demand among purchasers. The average prime yield shifted to 4.5% in October – substantially below the long term average of 5.6%.
Williams added: “This is not surprising with prime yields in most major markets around the world trading well below their long term averages.
“With the pricing of prime property bearing a relation to Government bonds yields, which too are trading at historically low levels, prime shopping centres offer an attractive margin, especially with an improving occupational market and real rental growth prospects.”
The strength of demand in 2014 saw a rapid shift inwards of yields. Throughout 2014 and up to the end of Q1 2015 both best secondary and secondary shopping centres yields contracted by 115 basis points and 175 basis points respectively.
Since March this year yields have remained static largely due to a significant increase in supply with £2bn of centres placed on the market between March and June with still £1.8bn of centres available.