All Eyes Look North To Discover What Shopping Centres Are Worth Today

There have been so few buyers for large UK shopping centres in recent years, it has been very difficult to work out where they are valued — there is no comparative evidence. But that could be about to change. 

Hammerson confirmed Monday that a joint venture between the REIT and the Canada Pension Plan Investment Board is in talks to sell the 1.1M SF Silverburn shopping centre near Glasgow to an unnamed buyer for about £140M. In a note on the transaction, Goodbody Real Estate analyst Colm Lauder pointed out that "no notable, large scale centre has traded in recent years meaning pricing evidence is extremely limited and the market remains at a price finding stage."

For that reason, the Silverburn transaction will be closely watched to provide some gauge of what other large centres might actually be worth.

“This transaction (if completed) will provide some evidence and should give the market a guide in terms of pricing for large shopping centres,” Lauder said. “Similarly, pricing from the ongoing Bluewater Shopping Centre Lendlease-stake sale indicates a more encouraging data point than would have been previously expected. Either way, the UK shopping centre market is in for the busiest Q4 in almost five years.”

Lauder said a sale at £140M would be a discount of about 5% to the last published valuation of the centre. He said Goodbody estimated the current net rental income from the centre was about £14M, which would indicate a net initial yield of about 9.4% on the centre.

That price is less than half the £297M Hammerson paid for Silverburn when it bought the centre in 2009. It bought the asset from administrators. At the time, it was considered something of a bargain. 

The sale of the centre will help to determine whether, as other REITs have contended, the sharp drop in values for shopping centres is really stabilising. 

As Lauder pointed out, the sale of a 25% stake in the Bluewater shopping centre in Kent is also seen as a litmus test for the value of large centres. A price of about £225M is expected, with Landsec, which already owns 30% of the centre, among the final bidders, CoStar reported.