Retail Investment Update - Q2 2021 - Green Shoots Emerging - Knight Frank
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Q2 2021
Retail
knightfrank.com/research
Investment
Update
Green Shoots Emerging
R E TA I L I N V E S T M E N T U P D AT E R E TA I L I N V E S T M E N T U P D AT E
WHAT YOU NEED Key Transactions - 2021
TO KNOW… Shopping centre Sector Purchaser Vendor Price NIY %
Hammerson Portfolio Retail Warehouse Brookfield Hammerson £330m -
Touchwood, Solihull Shopping Centre Ardent* Lendlease £90m 9.50%
Centre Court, Wimbledon Shopping Centre Romulus Construction Aberdeen Standard Investments £71.5m 5.90%
A1 Retail Park, Biggleswade Retail Warehouse British Land Aberdeen Standard Investments £49m 8.50%
Retail Warehousing Shopping Centres High Street
Increased investor demand is Pricing for relevant schemes – prime Strongest demand for historic prime Monument Mall, Newcastle High Street Rueben Brothers Aberdeen Standard Investments c. £37m c. 7.40%
compressing yields experiential and local convenience – assets let to secure, rent-paying tenants Sainsbury's, Ealing Foodstore IM Properties Aprirose* £33.7m 3.45%
starting to stabilise
Beacon Retail Park, Knight Frank Investment
Strongest demand for rebased, Better liquidity for smaller lot sizes Retail Warehouse Nuveen £23.2m 7.38%
Milton Keynes Management*
discount-led parks Valuation write-downs opening the
The Spires, Barnet Shopping Centre BYM Capital AIMCO £28m 6.70%
door for re-purposers High NIYs accounting for overrent
M&S, 72-76 Queen St, Cardiff High Street Topland M&G Real Estate* £23.25m 6.42%
Selective UK Funds back in
the market Bank led sales risk flooding the Buyers attracted to alternative Lidl, Weybridge Foodstore CBRE Global Investors Aviva Investors £12m 3.66%
market later in the year use potential *Advised by Knight Frank
Foodstore yields hitting new lows
All schemes rebasing to potentially
attractive new levels
THE YEAR SO FAR…
Transaction Volumes - YTD 2021 Occupational demand is improving With the moratorium over tenant trading conditions, should see a
with well-capitalised tenants evictions extended to March material improvement in collection
Transaction
Shopping Centres Retail Warehouse High Street Foodstores
beginning to selectively take space. 2022, many occupiers continue to rates now that retail is fully open
This improvement is particularly withhold back-rent from periods once again.
volumes prevalent in the leisure and discount/
essential retailer spheres. Leisure
of enforced closure whilst seeking
to opportunistically renegotiate Rents have fallen by 50% or more in
£511m
18%
reached operators are gearing up for a summer leases. Retailer failures have slowed some centres and this is not a short-
£2.76bn in the
bounce-back. Discounters/essential through 2021 with tenants aided by term correction. There may, however,
£780m
28% retailers are capitalising on market Government support and the large be instances of over-correction and
first half of
share gained during the pandemic and number of “at risk” occupiers failing rental growth is possible (albeit from
the attractive rental terms on offer. earlier in the pandemic. We expect a very low base).
£429m
16%
2021, up 80% E-commerce market share has
to see these failures grow again as
retailers’ running costs dramatically Investors are cautiously returning
from £1.54bn continued to steadily decline from
its February 2021 peak, following the
increase as staff come off furlough
and the business rates holiday ends.
to the retail sector, buoyed by high
yields and prospects of a counter-
over the same reopening of non-essential retail and
consumers’ shopping habits adapting Rent collection continues to be
cyclical buying opportunity. This ship
is starting to sail with prime yields
£1,040m
period in to the “new normal”. The February
2021 high-water mark stood at 36%,
challenging with collection rates
ranging from 30%-60% during the
already under downwards pressure
in the Out-of-Town and Foodstore
38%
2020 with the latest data (May 2021) showing pandemic affected quarters. New subsectors.
a fall to a more modest 28.50%. deals to return tenants to rent paying
position (often by writing off historic
Source: Knight Frank
arrears), coupled with more stable
2 3
R E TA I L I N V E S T M E N T U P D AT E R E TA I L I N V E S T M E N T U P D AT E
Sentiment is polarising between In- market. Administrators and banks, . Re-based, discount-led/bulky
Prime Retail Yields
Town and Out-of-Town retail. Whilst taking on secondary portfolios, are retail parks and solus units are most
Shopping Centres Retail Warehouse High Street Foodstores
undeniably stronger towards Out- likely to be the largest source of stock sought-after, whereas the perceived
of-Town, we are witnessing steadily in 2021. UK Institutions and Funds riskier fashion parks are yet to witness
9.50%
improving investment demand and have also been active sellers so far such inward yield shift.
competitive bidding on selected city and we anticipate further stock from 8.50%
centre assets, particularly where this ownership group as the year In all retail sub-sectors we are
re-purposing opportunities exist. progresses. witnessing stronger liquidity for 7.50%
Some investors, attracted to retail as smaller lot sizes. This is largely driven
a market recovery play but no longer With retail historically being the by the lack of debt available to finance 6.50%
able to compete Out-of-Town, are highest value use, the opportunity to acquisitions. Few lenders are willing
5.50%
turning to Shopping Centres and convert space to alternative uses only to underwrite retail acquisitions and
multi-let parades for higher yields/ existed in certain markets. However, those that are demand high interest
4.50%
lower capital values. the crash in values of retail property rates (often 5.00%+) and low gearing
(often 50% or more) has opened the (
R E TA I L I N V E S T M E N T U P D AT E R E TA I L I N V E S T M E N T U P D AT E
KNIGHT FRANK DEALS Riverside Retail Park, Northampton – acquisition The Moor, Sheffield – acquisition
Over the past 12 months we have transacted over £1bn of retail
assets across 58 deals and encompassing all retail sub-sectors. A
selection of these transactions are shown below. Thank you to all
those clients who have worked with us.
April 2021 April 2021
Client: Melford Capital Client: NewRiver / PIMCO
Price: £55m / 8.37% NIY Price: £41m / 9.10% NIY
Touchwood, Solihull - acquisition Sainsbury’s, Ripley - acquisition 72-76 Queen Street, Cardiff – disposal Beacon Retail Park, Milton Keynes – acquisition
July 2021 January 2021 June 2021 May 2021
Client: Ardent Client: Aberdeen Standard Investments Client: M&G Real Estate Client: Knight Frank Investment Management
Price: £90m / 9.50% NIY Price: £31.5m / 4.70% NIY Price: £23.25m / 6.42% NIY Price: £23.2m / 7.38% NIY
Cork Tree Retail Park, Chingford – disposal Sainsbury’s, Ealing – disposal 62-74 Burleigh Street, Cambridge – acquisition The Thistles, Stirling – disposal
December 2020 March 2021 January 2021 December 2020
Client: M&G Real Estate Client: Aprirose Client: Confidential Client: Aberdeen Standard Investments
Price: £35.75m / 5.92% NIY Price: £33.7m / 3.45% NIY Price: £21.7m / 5.44% NIY Price: £22.5m / 14.50% NIY
6 7
“Despite the challenges the retail market has faced, Knight Frank have closed
over £1bn of retail transactions in the last 12 months.
Looking ahead, we anticipate retail transaction volumes will grow to
£6bn+ in 2021, a level not seen since 2017.
Please do not hesitate to get in touch if we can assist with your Retail Investments.”
C ONTACTS
Charlie Barke Dominic Walton Alastair Bird
charlie.barke@knightfrank.com dominic.walton@knightfrank.com alastair.bird@knightfrank.com
David Willis Will Lund Daniel Serfontein
david.willis@knightfrank.com will.lund@knightfrank.com daniel.serfontein@knightfrank.com
Sam Waterworth Freddie MacColl Lizzie Mason-Jones
sam.waterworth@knightfrank.com freddie.maccoll@knightfrank.com lizzie mason-jones@knightfrank.com
Ross Needham Josh Roberts Emily McInnes
ross.needham@knightfrank.com josh.roberts@knightfrank.com emily.mcinnes@knightfrank.com
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