Shopping Centre Yields Hold Strong in Face of Economic Challenges

Posted by Colliers on 19th July 2023 -

The first half of this year brought a notable shift in the demand for UK shopping centres, with the overall volume of transactions decreasing by 43 per cent compared to the same period in 2022. 

 

Colliers’ latest research shows a polarisation of demand for shopping centres, with a divergence between assets priced above £100 million and those below £30 million. Despite this shift in investment patterns, shopping centres are showing resilience with yields relatively unchanged. Pierre Kunkler, director in Retail Capital Markets takes us through the latest investment transaction data from H1 2023.

Lower transaction volume, steady demand

In the first half of 2023, a total of £521 million worth of shopping centre assets were traded across 22 deals. This figure reflects a decline from the £919 million recorded in H1 2022. This is partly due to a fall in values and partly as a result of a lack of debt available in the market.  The scarcity of accessible financing options continues to hinder transaction volumes to fund bigger ticket assets. However, an additional £356 million is currently under offer, indicating a sustained interest in this market segment with some notable large transactions. Nevertheless, due to the attractive yields that can be achieved in this sector, it is anticipated that demand will increase as margins tighten on other asset classes that are currently more keenly priced, against the backdrop of rising borrowing costs.

Around two-thirds of the schemes that have been traded this year were acquired by "special purchasers" such as owner-occupiers, existing stakeholders, or local authorities seeking control over town centre footprints. What this clearly shows is that these parties see a positive future for these sites either in their current format or by integrating additional mixed uses that will complement these centres. 

Repurposing shopping centres

Traditionally, plans for repurposing shopping centres have predominantly been seen in the south of the UK, where residential values can support conversions to homes. However, the first half of 2023 has witnessed a more even geographical spread of transactions, with half of all deals occurring outside of the south east including The Forge in Glasgow, in which we acted for the seller, Waterside in Lincoln and St David’s in Cardiff. This suggests a growing interest in diversifying investment locations and exploring opportunities beyond the traditional hotspots and perhaps the rising cost of construction also being felt in the south east.

Stability in shopping centre yields and growing interest

Average yields for different categories of shopping centres—prime, secondary, and tertiary—have remained relatively unchanged at nine per cent, 11 per cent, and 16 per cent, respectively in H1 2023. Despite the prevailing challenges such as the cost-of-living crisis and rising interest rates, these stable yields have sustained investor interest in the sector. Investors are reevaluating their perceptions of the retail industry which has been through years of structural change and repricing which now provide investors with the potential for income growth and value add opportunities.

About the author:
Pierre is a director in our Retail Capital Markets team at Colliers and has been with the company since 2020. In his role he advises clients including institutions, property companies, developers and high net worth individuals. Sectors he covers include shopping centres, food stores, retail parks and high street assets alongside mixed use investments or fundings.

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