Partner Article

Investment volumes to improve

Looking ahead to the autumn we expect transactional volumes for the third quarter of the year to improve as a number of larger shopping centres are brought to the market. This follows a second quarter which saw a discernible slowdown in investment activity says Dickon Wood, partner, investment, Knight Frank. Total volumes for the second quarter were £749m across 13 deals. Although boosted by Schroder’s £153m purchase of Kings Mall in Hammersmith, which closed just before end of the month, volumes were still substantially below the level reported in the first quarter. Cumulatively, volumes in the first six months of 2015 stood at £1.8bn, around 14% lower than the first six months in 2014. However, the relative lack of volume belies generally positive market sentiment with retail continuing to offer attractive initial income returns relative to other sectors. There is healthy demand for prime and good secondary shopping centres, although the market for poorer secondary assets is more fragile. Portfolios remain a favoured route and are seen as an opportunity particularly for overseas investors, their appetite driven by cheap finance and relatively high yields. Project Charlotte is a good current example of a portfolio transaction, comprising seven diverse centres from Tamworth to Glenrothes. The portfolio is currently under offer with a quoting price of £245m and quoting yield of 7.23%. Deals completed during Q2 included Broad Street Mall in Reading for £62m reflecting6.85% Net Initial Yield (NIY) , Rope Walk in Nuneaton (£24m, 8.5% NIY ), and Grosvenor Centre in Chester (£65m, 6.35% NIY). The latter was particularly significant in that the purchaser was a new entrant to the market, namely US private equity house HIG, an example of the increasing diversity of buyers. A further £800m of capital was under offer at the end of June including N1 Angel in Islington, which is being sold by Hendersons for £173m at a NIY of 3.85% and the Grafton Centre in Cambridge, which L&G are buying from M&G for around £100m, a NIY of 5.75%. There are already encouraging signs for a pick-up in activity in the second half of the year. The number of schemes being openly marketed is increasing and stood at 26 at the end of June 2015. The schemes have a collective quoting value of around £1.3bn. The highest profile centre currently available is the West One centre on London’s Oxford Street. The 90,000 sq ft scheme is being sold by Orchard Street on a long leasehold with a quoting price of around £240m, representing a yield of 3.46%. Yields for prime stock continue to harden although the rate of yield compression appears to have eased – possibly a reflection of the uncertainty surrounding the General Election midway through the quarter. At the secondary end of the market we have seen a number of weaker secondary centres fail to attract investor interest at the asking terms and yields remain stubbornly in the 8%+ territory. ends

This was posted in Bdaily's Members' News section by Knight Frank .