Despite UK shopping centre property investments in 2015 providing total returns of 10.0%, the sector is due to face an ‘Age of Change’ and bring with it challenges for many centres.
According to the latest MSCI/Colliers International UK Shopping Centre Investment Report, in the sector, £4.49bn of assets changed hands during last year with both overseas and domestic investors targeting the sector.
In 2015, the total return for investors in UK shopping centres had fallen from 14.0% to 10.0% and is still behind the UK property market, which returned 13.1%.
Head of Shopping Centre Investment at Colliers International, James Findlater, commented on the findings: “Strengthening values have been the dominant component of total returns through the recovery cycle but for many secondary centres, changes to retail dynamics, poor asset selection and inadequate yield have failed to keep pace with the decline in income leaving some investors out of the money.
“Even for top-flight, prime, regionally-dominant centres, the age of dramatic yield shift is coming to an end and the driver for returns will be entirely focussed on income. For the UK shopping centre sector, the Age of Change is just beginning.”
The research analyses 213 shopping centre assets that’s valued at around £13.5bn.
Colm Lauder, MSCI’s Vice President, added that lagging shopping centre prices happen due to their much larger average lot sizes and level of capital expenditure that they require.
He goes on to say: “Nonetheless, following the broader retail trend towards better quality assets, prime shopping centre rents grew through 2015 with increasing retailer confidence, and yields subsequently compressed as investors’ demand for assets grew.”
The study found that there was 0.2% rental growth in the sector as a whole last year, while prime rents saw growth of 1.4%.
James Findlater concluded: “To meet the challenges of online retailing and reduced retailer demand for space, shopping centres have to be treated as organic and adaptable trading environments.
“The ability to generate progressive income is all-important and in that context we can expect to see increasing polarisation between prime and secondary assets.”
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