Shopping Centre Demand Robust in Q3

Despite the rise of online
shopping, demand for retail centre space was robust in the
third quarter of the year. Knight Frank’s UK Shopping Centre
Investment report saw tentative signs of improved occupancy, with a
diverse range of buyers in the market.

This momentum is expected to continue for the rest of the year,
good news for both the property and retail sectors in the run-up to
Christmas.

During Q3, total transaction volumes amounted to £1.03billion of
assets across 12 individual units and two portfolio deals. This is
an increase of 45 per cent on the same period last year. So far in
2013 investment volumes have reached £2.92 billion, exceeding
2012′s £2.74 billion total.

The largest transaction recorded in Q3 was Blackstone and
Sovereign Land’s £186 million acquisition of St Enoch Centre in
Glasgow. At least six other investors bid on the asset, which gave
a net yield of 7.25 per cent. Knight Frank was also involved in the
£64.5 million sale of Uxbridge’s Pavilions Shopping Centre, which
reflected a net initial yield of 7.80 per cent.

In the future, Knight Frank expects margins between prime and
top-end secondary yields to narrow. Investors will increasingly see
value in better quality secondary shopping centres. Bruce Nutman,
partner and head of retail investment at Knight Frank, said: “As we
predicted in Q1, 2013 is proving to be a very positive trading
year, potentially the best for five years.

Concerns remain for the high street – vacancy rates, retailer
trading, and high business rates – but the investment market has
focused upon the returns and shopping centres of varying quality
are finding buyers.”

This is part of a wider upswing in the commercial market.
Indeed, Jones Lang LaSalle believes the market has turned a corner.
All-property total returns climbed to 6.6 per cent for 2013 from
5.8 per cent in the last quarter. Shopping centres are still
lagging behind offices and industrial space, but the segment is
managing to hold its own.