UK supermarket property deals hit record 1.8 bln stg in 2013

Wed Mar 5, 2014 11:29am EST

LONDON, March 5 (Reuters) - Supermarket property deals in
Britain hit a record 1.8 billion pounds ($3 billion) in 2013 as
investor competition drove up prices, reflecting the strong
appetite grocers such as Wm Morrison could tap should
they decide to offload real estate.
    A report by Investment Property Databank and property
consultant, Colliers International on Wednesday showed deal
volumes surged 50 percent in 2013 from the previous year on a
5.8 percent increase in values, the strongest annual value
growth since 2010.
    Morrison has come under pressure from shareholder Elliott
Advisors to spin-off its real estate into a separate company, a
move which the U.S. hedge fund said would push up the
supermarket's share price. 
    The company said in September it was reviewing its 9 billion
pound property portfolio, which is currently 90 percent
freehold. While it stressed the majority of its core estate
would remain overwhelmingly freehold, it said the review could
lead to the release of surplus capital to shareholders.
 
    "They would be talking to a very willing market," said James
Watson, head of UK retail investment at Colliers International.
    Properties occupied by supermarkets are highly sought after
by investors such as insurers Prudential and Legal &
General as such properties tend to have leases that can
be twice as long as those held by standard retailers,
guaranteeing steady rental income. There is also the perception
that grocers are better capitalised and less risky than other
retailers. 
    "They're more a bond investment rather than a real estate
investment," said Ben Sanderson, director of international and
debt investment at fund manager Hermes Real Estate, which sold a
Sainsbury store in Essex, east England, to Prudential's M&G Real
Estate unit last year. 
    Last year, supermarkets delivered a total return - includes
rental income and rises in property values - of 11 percent year
on year, ahead of retail at 9.6 percent and all property at 10.5
percent. The average net initial yield across the transactions
was 4.75 percent. 
    The report showed property companies were the biggest
sellers, selling 42 percent of the 59 deals last year. Retailers
accounted for 29 percent, followed by institutions at 24
percent. 
    Analysts said competition for such properties was also
exacerbated by a shortage of supply, after grocers such as Tesco
and Sainsbury's announced the end of the space race and a move
to smaller stores, resulting in a fall in sale-and-leaseback
activity.
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.