Shopping centre investors exercise caution – Knight Frank
The pricing of shopping centres in the UK remains key, as investors are still cautious about economic prospects and the general health of the retail sector, says Knight Frank in new research. The cost and availability of finance is also a vital issue, with debt available on competitive terms generally only for the better-let schemes, it adds.
Investors are now “increasingly pricing in potential retailer failures, demanding rental guarantees on certain income streams and, in some cases, just excluding risky income from their analysis,” the firm notes. As a result, shopping centre yields are under outward pressure, particularly at the secondary end of the market. At the prime end of the scale, much will depend on the outcome of the ongoing sales of the Meadowhall Centre in Sheffield and Festival Place retail centre in Basingstoke, it adds.
“Yields on all UK shopping centres remain vulnerable to a further outward shift and a difference of as much as 225 basis points now exists between prime schemes and good secondary stock,” the firm says. While the prime shopping-centre yield was 5.50% at the end of March – a 15bp outward shift from December – the yield for good secondary schemes was 7.75%, which was 25bp more than at the end of 2011, it notes.
The firm’s latest UK Shopping Centre Investment report says there were 10 shopping-centre assets transacted during the first quarter of 2012, with overall transaction values totalling £668.8m compared with £1.95bn in Q1 2011.
Demand does exist “for the right product across the quality spectrum, provided realistic pricing is adopted,” Knight Frank says, and overseas investors are making increasing enquiries about quality schemes, it notes.
