Commercial Property News

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Thursday, August 09, 2023

Savills report on second quarter shopping centre market

According to Savills' latest Shopping Centre bulletin, quarter two has seen over 1.42bn of shopping centres traded in just 14 deals. Whilst this indicates that fewer schemes have been transacted compared to quarter one, the average lot size reached 118.57m, which is almost double that in quarter one.

Mat Oakley, director at Savills, comments: "The emergence of this new trend of fewer deals and larger lot sizes being transacted indicates that investors are favouring quality over quantity. The average deal size for quarter two is 118m, which is significantly higher than that of quarter one at 60m. The total turnover for quarter two is down on quarter one at 1.4bn, however the combined total for the two periods is 3.06bn, which lies above the 2.3bn traded this time last year and shows good growth within the market."

The report also states that average initial yields still remain low but have now moved out 47 basis points in 12 months to 5.32% showing a slight softening from the start of 2007. Despite this, it is reported that 40% of all shopping centres traded in quarter two reflected an initial yield below 5%.

The divergence of primary and secondary asset yields is gathering pace and currently stands at 75 basis points. The research indicates that this could continue to 125-150 basis points over the next 6-9 months. Prime equivalent yields currently stand at 4.75%.

Nick Hart, director at Savills, comments: "One key issue to consider is the disjoint between market reality and asset valuations on the secondary stock. Much rests on the 'responsible valuers' and the frequency with which such assets are valued. This will determine just how long the impasse will last.

"Fortunately, there is now evidence to help this process and it will be very interesting to monitor when assets come for refinancing, given the yield shift, just what further equity input banks will be asking owners to put into their assets as aggressive loan to values fall to circa 70% in some cases."

In terms of investor groups, the research shows that no one sector has dominated purchases in quarter two, but property companies have been increasingly active this half year as vendors, accounting for over 64% of all shopping centre sales.

According to Savills' data, there are currently 15 shopping centres under offer with a capital value of 1.93bn, with a further 1.97bn in the market. The number of centres that have failed to sell is steadily growing as vendor expectations are not matched by what prospective purchasers are able to pay. This has been driven by the three rises in the Bank of England base rates since January 2007, which have had a tangible impact upon the transactional power of many debt-driven purchasers.

The report states that global money continues to be attracted to the prime assets. The key investors continue to be Ivanhoe Cambridge, QIC, GIC and Apollo having accounted for 60% of capital value in transactions conducted in the first six months of 2007. There is also expected to be an increase in American and Asian investors attracted to the market, which will help to keep yields low at the prime end.