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Shopping centre investment soars

According to the latest research from Savills, shopping centre investment volumes in 2013 reached £4.58 billion, which is an 70% increase on the £2.7 billion traded in 2012.

The international real estate advisor also notes that this increased weight of capital attracted to the sector resulted in average initial yields in Q4 2013 moving in significantly to 7.6% compared to 8.94% during the same period in 2012.

In total, 84 shopping centres were transacted last year with key deals including: the sale of Elephant & Castle Shopping Centre, London for £80 million (4.25% niy); the sale of King Edwards Court, Windsor for £102 million (5.6% niy); the purchase of Royal Exchange, London for £83.5 million (4% niy) and the acquisition of a 50% stake in Centre MK, Milton Keynes for £260 million (5.4% niy).

Savills highlights that due to a growing scarcity of suitable stock, there could be an increase in REITs and Sovereign Wealth Funds looking to acquire a 50% passive stake in joint ventures, which 12 months ago were unlikely to have been considered.

Nick Hart, investment director at Savills, comments: “The shopping centre market has maintained incredibly strong investor interest over the last 12 months, particularly at the prime / super prime end, where demand has increased and further yield hardening is expected as a result of limited supply and the weight of capital as markets polarise to prime / dominant assets.”

The shopping centre investment volumes for 2013 are in line with Savills 2012 predictions that £4.5 billion would be transacted during the year. The firm also forecasted a  significant interest in strong town centre dominant shopping centres, which has been realised with yields decreasing by circa 50 to 70 bps in this area of the market.

Mark Garmon-Jones, investment director at Savills, adds: “Following the success of last year, we have seen the shopping centre market make a robust start in 2014 with 18 shopping centres currently under offer accounting for £1.35 billion, with a further 13 assets in the market totalling £1.7 billion and approximately 22 shopping centres being prepared for sale. While the strongest investor demand is for the prime / super prime end of the spectrum with secondary and tertiary markets continuing to remain more challenging, we do expect to see some inward yield shift for stronger secondary assets as buyers become more confident about the retail market and reduced over renting.”

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