UK Shopping Centres: New Investors Climb The Mountain Of Debt
First it was the foolish. Then it was the brave. Now the big global pension funds are moving in on the UK’s convenience-led shopping centres.
Three of LaSalle Global Partner Solutions’ pension fund clients have bought the 215K SF St George’s Shopping Centre in Harrow, as investors rediscover neighbourhood values.
The north London suburban shopping centre, which has 32 units and around 9 million customer visits a year, was sold by RDI Reit.
OakNorth Bank provided a £20.5M loan to boutique retail business Axis Retail Partners to complete their first shopping centre buy. Axis counts Italian pensions and insurance giant Generali among its backers.
The deal marks a turning point. Until recently it would have been unusual for a global pension fund to take an interest in a neighbourhood mall.
But the Harrow scheme has real appeal. Refurbished in 2015, St George’s is fully let to convenience and value retailers including TK Maxx, Boots, Wilkos, H&M, Nandos and Pizza Express, situated alongside a 12-screen Vue cinema.
“We are focusing on assets which are relevant retail destinations and that have a demonstrated track record of strong performance, a rebased rental level and offer an attractive income yield to our clients,” Axis Chief Investment Officer Toby Smith said. The yield has not been revealed.
The heavily indebted market for prime shopping centres hit the bottom in the third quarter of 2021, and it has since climbed in popularity due to the projected returns of 7.4% a year, the highest of any property sector. However, the local shopping centre scene still has had a more wild-west feel. Many buyers are local themselves.
“Shopping centre performance remains intensely polarised between those assets serving a purely convenience-led audience and those offering a more experiential purpose,” Knight Frank reported in December 2021. “Whilst a host of local centres have traded in the market this year (suggesting that some investors are readily buying into their longevity), we have seen very few regional malls test the market, in a sign that vendors’ remain unconvinced by the level of demand in this arena.”
Data published earlier this month by Statista suggests that successful local shopping centres can achieve 6.75% yields, whilst challenged schemes could expect a yield of 8%. Both were keener than the yield for well-performing regional or sub-regional malls, placed at 8.5%-9%, according to data published earlier this month
Yields on the more challenged properties are typically 12% or more, Knight Frank said.
Axis was formed in 2018 following a partnership between Generali Investment Holding and entrepreneurs Florencio Beccar and Toby Smith, and it now has €525M of assets under management.
