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UK shopping centre investment volumes reach GBP2.73bn in H1

UK shopping centre investment transaction volumes reached close to GBP2.73bn during the first half of 2014, substantially in excess of H1 2013 at GBP2.23bn, according to DTZ.

It has been a roaring first half to the year fuelled by the weight of money targeting the sector. In Q2 2014, 15 shopping centres transacted totalling GBP1.42bn, similar to the GBP1.31bn (13 shopping centres) transacting in Q1 2014.
The most significant transaction in 2014, setting a new super prime benchmark and illustrating the depth of demand for stock, has been the sale of Lend Lease’s 30 per cent stake in Bluewater Shopping Centre, Dartford. The asset was hotly contested for by the UK REITs, global shopping centre asset managers and sovereign wealth funds alike. Land Securities were successful and are reportedly paying GBP696m with the NIY rumoured to be sub four per cent. This transaction alone accounted for 49 per cent of the total transaction volume in Q2.
DTZ acted on the sale of Washington Square, Workington this quarter on behalf of DTZ Receivers, to Europa Capital & Scoop Asset Management for circa GBP31m 7.70 per cent NIY. DTZ also advised the purchasers of The Octagon Shopping Centre in Burton upon Trent (Vixcroft) which transacted for GBP16m and the purchasers of The Gates in Durham (The Other Retail Group & Clearbell Capital) which sold for circa GBP12m. 
Eight shopping centres were under offer at the end of Q2 totalling circa GBP800m. This still includes a 50 per cent stake in Cabot Circus, Bristol for GBP270m 6.25 per cent NIY as reported in Q1, as well as the 50 per cent stake in Telford shopping centre for circa GBP200m circa 6.00 per cent NIY. There are 31 shopping centres being openly marketed totalling GBP1.23bn, highlighting a good level of stock is available. This stock, however, comprises predominantly either large or small lot sizes as well as portfolios. There is a notable lack of stock priced between GBP20 million and GBP50 million available and there is strong demand amongst UK retail funds and property companies for such lot sizes.  This increase in demand and frustrated capital has resulted in yield compression and we expect stock to continue to attract competitive bidding.
Due to the weight of money currently in the market, yields in Q2 2014 have hardened for all shopping centre sub-sectors and are all continuing to trend inwards.  Super-prime yields have come in since Q1 2014 and are now at 4.50 per cent, supported by the 30 per cent transaction in Bluewater at the end of June. This is a benchmark for the super prime market although it is worth noting a premium applies for this unique asset. Prime yields have shifted inwards to 5.25 per cent while yields for dominant secondary shopping centres have come in over the quarter to 6.75 per cent/7.50 per cent, an example being Golden Square Shopping Centre, Warrington, which recently exchanged at circa 6.75 per cent. Similarly, secondary shopping centre yields have also come in over Q2 2014 to 7.75 per cent/8.50 per cent, an example being Washington Square, Workington. Yields for tertiary shopping centres are at 9.00 per cent.
Barry O’Donnell, head of shopping centre investment, says: “The first half of 2014 has been extremely active and we expect to see no let-up in demand. There is a large weight of money in the market and we are only seeing the start of Asian capital investing in shopping centres in the UK and Europe. Talking points continue to be Scottish devolution and the increase in amount and competitiveness of leverage in the sector.”
Jonathan Rumsey, head of retail market analysis at DTZ, says: “We continue to see positive economic news and expect this to continue throughout the year. Retail sales are on an upward trajectory with volume growth of 4.7 per cent in May (ONS), led by strong clothing and big ticket item sales. With falling vacancy rates and consumer confidence at the highest reading since March 2005, the health of the UK retail market continues to improve. With high levels of demand and weight of money, the UK shopping centre investment market has seen an impressive first half with investment volumes 22 per cent up on H1 2013. Yields have hardened across sub-sectors and we see these continuing to trend in.”

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