UK shopping centre investments up nearly 50% in 2009

8 Jan, 2010, London

According to property consultant Cushman & Wakefield, a flurry of activity in the final quarter of 2009 generated annual turnover of £2.065 billion, approximately 42% ahead of 2008. The last quarter of 2009 saw eight shopping centre transactions totalling approximately £810 million. These included the £297 million sale of Silverburn to Hammerson and Canada Pension Plan, La Salle Investment Management’s £100 million purchase of The Mall Bexleyheath, the Crown Estate’s £100m purchase of a 50% share in Princesshay in Exeter and HP Properties’ purchase of Clydebank in Glasgow.

In addition, deals currently under offer total approximately £400 million including The Mall schemes in Aberdeen and Preston, which are under offer to Rockspring and Orchard Street respectively. These transactions should ensure that market turnover gets off to a strong start in 2010.

Investor sentiment, which improved markedly in Q3, remained strong throughout the final quarter of the year and the sector continued to see yield compression with some sub sectors seeing 75bps inward movement. The strongest demand remains for prime assets with prime yields returning towards their long term average. Secondary yields still offer a significant discount, as fears over the occupational market and income sustainability, understandably, continue to deter investors.

The 2009 development pipeline also peaked in the final quarter with the opening of St David's 2 in Cardiff, Union Square in Aberdeen and the first phase of Southgate, Bath. On the whole, tenant feedback from these schemes has been positive, but these schemes are carrying relatively high vacancy rates which could negatively affect the performance in these towns in the short term.

From an occupational perspective, we have seen significantly fewer year end tenant failures than over the same period twelve months ago. Provided the January sales pass reasonably well and the ‘big freeze’ does not have a disastrous affect on January trade, there appears to be cause for cautious optimism for 2010.

In 2010, investors will need to focus on income sustainability in the short term with rental growth and reversions being more medium term considerations. Prime assets are likely to remain the safer bet, but shrewd investors may start to selectively consider the secondary market as offering better value as the year progresses.

David Erwin, CEO of UK capital markets at Cushman & Wakefield said: “With hindsight it could appear that 2009 was a missed opportunity for many investors. The yield discounts offered at the start of the year probably over-compensated for the weakness in the occupational market. With investment demand exceeding supply in the second half of the year we have seen yields start to correct. The question is, will yields continue to harden throughout 2010 and will those who fail to act also look back on 2010 as a missed opportunity come January 2011.”

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