Investors Start Taking Notice Of Retail’s Improved Performance

For the past year, retail owners have been bemoaning that the operating performance of shopping centres had improved dramatically since the end of pandemic-induced lockdowns, but investors weren’t factoring it into pricing.

That could be about to change. 

“The pool of buyers is still small, and I’m not saying things are going to accelerate back to where they were,” Ardent Managing Director Andrew Hilston told the audience at Bisnow’s Driving Footfall: Retail and Mixed-Use Real Estate event, held at the Royal Society of Medicine. 

“But capital allocators and banks, the people who drive attitudes, are starting to look at retail again.”

Hilston cited the sale of a 25% stake in Edinburgh's £1B St James Quarter shopping centre, which EG reported as being under offer, to retail specialist Redical Holdings as having achieved a price stronger than the market was expecting. 

On the lending side, he pointed to the Touchwood shopping centre in Solihull, which private equity investor Ardent bought in 2021 for £90M and just refinanced. When it bought the centre, it had two lenders willing to offer financing. For the recent refinancing, nine lenders queued up to provide offers. 

Ardent bought the Touchwood scheme at a 10% yield, Hilston said, and that yield has now dropped to around 7%. Some investors, including the Abu Dhabi Investment Authority, have decided to shelve sales in the past year rather than accept prices that did not reflect underlying strong occupancy performance.

But buyers now seem more ready to pay up. 

Earlier this month, Hines said it was looking to invest in the retail sector again after several years out of the market. The change in sentiment was driven by the fact it thought rental declines in the sector had bottomed out, but asset prices remain depressed across the board. 

Landsec, the UK’s second-largest REIT, is also looking to invest in the retail sector and was one of the underbidders on the Edinburgh sale, EG reported. 

Attendees at the event heard that performance at good-quality centres has been strong this year despite elevated costs such as mortgage and food price inflation. 

“We've seen incredibly positive footfall growth across the board, so at least 5% year-on-year to date,” CBRE Investment Management Head of Real Asset Management Louisa Butters said. “And even greater results, actually, where we've seen asset management initiatives come to conclusions. So, the completion of repurposing and the introduction of new uses.”

CBRE IM’s UK retail assets were 95% occupied, just down from 96% in 2019 — essentially a return to normal, she said. 

“I think also we're seeing that trend in online penetration. The rate of growth has reached saturation,” Butters said. “That is helping the physical return and really putting people back into our schemes.”

Lane7 Director Tim Wilks pointed to a strengthening of both the investment and occupational markets as a factor in the rally. The bowling alley operator buys and leases the sites it operates, and Wilks said that at one scheme it owns in Lincoln, it did not need 11K SF of the 40K SF it had bought. 

“We had 20-plus offers for units of 2,500 SF to 3K SF,” he said. “We were frankly blown away, given that for a lot of the year it has felt like people were treading water, just waiting for the change of government.”