Shopping Centre yields continue to harden
Published: 13 April, 2010
Demand for shopping centre investments is forecast to continue improving, with UK funds leading the way, forecasts Knight Frank.
In its quarterly investment market commentary the agent predicts further downward pressure on shopping centre yields over the coming months, especially at the prime end of the market.
According to Knight Frank the improvement in activity seen in the last quarter of 2009 continued into 2010 with £656m of shopping centre sales completing in the three months to March 31. In all eleven assets changed hands.
The headline deal of the quarter was Meyer Bergman Retail Partners’ long anticipated £130m purchase of a 50 per cent stake in the 669,000-sq ft Bentall Centre in Kingston-upon-Thames from Aviva. The shopping centre provided the market with concrete evidence of current pricing for top-end assets, reflecting a net initial yield of 5.75 per cent.
But most activity was in the secondary market, reflecting the shortage of prime opportunities. Examples included Rockspring’s purchase of St Tydfil Square, Merthyr Tydfil for £24m reflecting a 9.50 per cent initial yield and the sale of Salford Shopping Centre, Manchester by Prime Commercial Properties to Praxis Holdings for £40m to show a 9.00 per cent initial yield.
Consequently, Q1 brought a second consecutive quarter of yield compression for secondary assets. Both good secondary and secondary assets saw a shift of 50bps to 7.50 and 8.50 per cent respectively.
Knight Frank says a shortage of supply remains an enduring theme in the market, with only seven assets available at the end of March with a combined quoted sales value of £579m. Importantly, however, £290m is accounted for by William Ewart’s Prime London shopping centre portfolio, comprising Victoria Station, Fulham Broadway and Hammersmith Broadway. These prime London assets came to the market in March and are expected to attract strong interest.
In addition seven seven assets were under offer at the end of the end of the quarter. Matterhorn Capital’s O2 Shopping Centre in north London with an initial yield of 6.15per cent and Delancey’s Arc in Bury St Edmunds, yielding 5.75 per cent, best illustrate the current strength of demand in the market.
