Mike Ashley's £250M Shopping Centre Spree Leads Retailer Push Into Owning Brick-And-Mortar

While investors slowly come around to the idea that there may be value to be found in acquiring retail real estate once again, another type of buyer has stolen a march on them — retailers themselves.

Two companies in particular have targeted shopping destinations: Mike Ashley-founded fashion group Frasers, which has bought or is buying £250M of retail assets, and Swedish furniture and homewares giant Ikea, through sister property business Ingka Centres. The latter has bought two centres, in Hammersmith, which is completed and open, with an urban-format Ikea as anchor, and Churchill Square in Brighton, which will welcome a new Ikea next summer.

And there is no stopping Frasers. On Friday, Frasers Group acquired the 160K SF St Nicholas Arcade in Lancaster's city centre, with CEO Michael Murray declaring, “At Frasers, we have always been strong believers in physical retail. By acquiring key retail sites, we are able to unlock new growth opportunities and this acquisition is also another step in developing our property segment.”

Little wonder then that U.S. investor Hines this week said it wants to start buying retail again. But while investors wait, two of the most successful players in the battered retail sector have already amassed brick-and-mortar assets to bolster their cash flow and position themselves for an asset price recovery. 

“It gets interesting because some well-capitalised retailers — and that's key because successful retailers are thriving — with strong balance sheets are looking at real estate and thinking there's an opportunity,” Cushman & Wakefield Head of Retail Capital Markets Marcus Wood said. 

Dominating the headlines, as usual, is the Ashley-controlled Frasers Group and its rapidly expanding property portfolio that includes the recently acquired 770K SF Frenchgate shopping centre in Doncaster; the Overgate Centre in Dundee, for which it paid £30M in March 2023; Yorkshire outlet centre Junction 32, which it paid £50M for last November; and The Mall Luton, which it bought for £58M last March and is rebranding as Luton Point.

Frasers Group declined to comment on its acquisition strategy, but CEO Michael Murray said in a statement on the purchase of the Doncaster mall that it “further demonstrates the group’s commitment to investing into brick and mortar.”

Frasers is also in the process of buying the 350K SF outdoor shopping centre Fremlin Walk in Maidstone, Kent, which has an asking price of around £25M, while it is understood to be in discussions over the Princesshay Shopping Centre in Exeter with co-owners Nuveen and The Crown Estate for a total deal that would be worth an estimated £80M.

As a multibrand operator, Frasers can fill much of the space with its own stores, including Sports Direct, Flannels and its department store concept Frasers, plus USC and Evans Cycles. But Wood said that while the trend is not new, these acquisitions do have some new features.

Retailers have always owned their own property but were squeezed out for a while when retail investment became very difficult. Supermarkets still own the vast majority of their stores, and it used to be common for department store chains to own their real estate — real estate investor Redevco was created from the real estate owned by parent company C&A.

In the case of Frasers Group, Wood said owning assets also puts the fashion-led group in a better position to make serious investments in its properties, which future-proofs its investment and helps build value for a potential sale.

“They can invest and change the asset to suit,” he said. “But it also demonstrates they have a great degree of belief in their brands. The retailer may have the capital and have spotted an opportunity to step in, but it is also showing the highest degree of confidence in bricks-and-mortar.”

A boring answer as to why it is buying as well as leasing space is because it has the balance sheet and it is just deploying money, Wood said. An interesting answer is that it believes this is the best way to retail. 

Knight Frank partner and Head of Retail Research Stephen Springham said having boots on the floor as occupiers needing to attract shoppers day in, day out means retailers have become savvy at spotting value in property.

“I don't think Frasers are sitting down in the boardroom with a list of shopping centres to buy,” Springham said. “It's not your typical property play, albeit the schemes [they buy] have to tick a few boxes. One is that they're probably in occupation over a number of units, and the scheme has got to be at a value that stacks up. I don't think they're going to be in the market for uber-prime.”

Springham predicted the targeting of second- and third-tier shopping centres that “do a job” would continue.

“Valuations have tumbled on those, probably too far, if I'm honest,” he said. “So they're actually picking them up for a bargain. So it makes sense. They are doing the sums. If they've got two or three units in these schemes, they can look at the rent roll and work out that it's an absolute no-brainer because then they can also get income from all the other tenants.”

Springham said there are strong parallels with the supermarket sector, where the major groups typically own a large proportion of their estate, providing greater sway over costs and operations.

“Some people are maybe reading a little bit too much into it, that Frasers are going to kick out all their competitors,” he said. “That's probably believing the myth of Mike a bit too much. He's not going be kicking out people who are paying him money. But Frasers is also probably looking and thinking that they could be there for a lot of years. So it's a big endorsement of those locations.”

Ingka Centres Managing Director Cindy Andersen has been pivotal in driving the global expansion plan for the company’s real estate strategy, with Ikea-anchored schemes in China, India, Europe and North America of varying formats and sizes. The common theme is the meeting place concept, with acquisition the core strategy in Europe — notably the UK and France, with Italie Deux Paris purchased last year and debuting its new 67K SF Ikea store on Thursday.

In Churchill Square in Brighton, which it bought for about £145M last year, she said the company plans to open an Ikea at the former Debenhams store in the first half of next year, with construction in progress.

“That will be also a super exciting milestone for us, and we are working with Ikea looking in Europe at the larger cities for urban locations, acquiring existing property and focused on quality,” Andersen said. “We have to be sure that it's both the right location and then the right asset, since we are very long-term.”

With the strategy based around acquisitions rather than greenfield development, inevitably some of the approach is driven by what becomes available. Andersen said that internally and within the shopping centre sector as a whole, there have also been discussions about online, offline and the impact of the pandemic. But she said the company believes in physical retail.

“In Europe, we are almost back to pre-Covid footfall levels, so for us having both physical locations as meeting places, of course together with Ikea, just manifests that there is no divide between online and offline,” she said. “You need both, and then the challenge is to constantly develop spaces that are relevant, because if you lean back and do what you always did, you will not attract people.”

Springham said such approaches demonstrate the confidence Frasers and Ikea have in their brands, which they also know will help draw footfall and are therefore attractive anchors for third-party retailers. 

“The situation with Ikea is still opportunistic, but in a different way,” he said. “You know they're definitely going to be buying assets where they can put a store, and Churchill Square is a very good scheme, but I don't think they're going to be buying shopping centres the length and breadth of the land.”