Shopping centres have lost a third of their capital value since the peak of the last boom market, and further falls are on the way, according to new research from Knight Frank.
“Increasingly difficult tenant trading conditions and larger lot sizes in conjunction with an absence of available funding make further price adjustments a certainty,” concludes the agent.
However the one bright spot could be the very top of the market, where Knight Frank reports overseas buyers are beginning to show interest: “The recent fall in Sterling combined with yields on prime shopping centres of 6.5 to 7 per cent is making this sector of the UK market appear good value.”
Reflecting this, the final quarter of 2008 saw just three shopping centre deals worth a combined £149m, which is representative of the lowest level of activity of the year. Over 2008 only 18 transactions took place. Total sales volume in 2008 was £1.44bn, 67 per cent down on 2007 and the lowest this decade.
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British Land has put Fremlin Walk in Maidstone up for sale |
Reflecting the steep fall in capital values and the limited availability of debt, the average lot size in 2008 stood at £65.8m, 29 per cent down on 2007. Just three shopping centres sold for more than £100m in 2008, against nine in 2007.
The few purchasers active in the market were dominated by private equity funds and pension funds and three players – LaSalle Investment Management, Carlyle and Henderson – accounted for 65 per cent of all shopping centre purchases.
However Knight Frank offered some hope of an increase in activity for 2009 with seven shopping centres under offer at the year end, the largest being British Land’s 50 per cent stake in Meadowhall. And 27 shopping centres were being actively marketed at the end of 2008. Knight Frank ascribes this surge in stock to an increase in forced sales and a move by investors to reweight their portfolios away from retail in anticipation of a worsening occupier market.
Among the malls with ‘for sale’ signs hanging over them were Princes Quay in Hull, priced at £120m off a 6.8 per cent initial yield; Fremlin Walk in Maidstone available at £95m yielding 6.75 per cent and The 02 Centre on London’s Finchley Road which has a £106m quoting price to show a 7 per cent yield.
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