Retail park deal volumes have outpaced shopping centre transactions by more than three times in the latest quarter, highlighting the gulf between the sectors.
Shopping centres used to dominate retail real estate investment, but this has flipped towards retail warehousing in recent years.
Figures from Knight Frank, exclusively for EG, show that retail parks sold a combined £449m during the third quarter of this year, more than triple the £130m equivalent for shopping centres that traded in the same three months.
Retail park investment volumes have reached £973m so far in 2019, compared with £620m of shopping centre deals during the same period.
Mark Smith, partner at Knight Frank, said that the more “straightforward” nature of retail warehousing is a likely explanation for its increasing appeal among investors.
“It is simpler to understand the underlying site values and alternative use values in most instances for retail warehousing,” Smith said. “They are more straightforward to manage, and repurposing is easier.
“Also, the sellers for retail warehousing are predominantly institutions, with regular valuations the driver, whereas shopping centre ownership is now more skewed to private equity, with return on the original equity the driver.”
That said, volumes in the retail warehousing sector have declined compared with the previous year. Around £1.8bn of retail parks changed hands in the nine months ending Q3 2018, marking a 45% decline year-on-year.
Retail park deal volumes during the quarter have also dropped sharply, tumbling from around £1.1bn in Q3 last year.
On the other hand, shopping centre volumes grew up by 30% to £103m during the third quarter, from £100m in Q3 2018.
However, deals for shopping centres fell by 18% in the nine months ending 30 September, from £760m in the same timeframe in 2018. There have been 22 transactions so far.
Smith said that both categories will now “almost undoubtedly” experience record low transaction volumes this year, but noted that many investors are now actively targeting retail.
He highlights that pricing is finally reaching “a level that unlocks interesting, previously unexplored approaches”, particularly where the scope for conversions to other uses such as industrial and hotels are concerned.
“The market is so thin, but there are many would-be sellers,” he added. “With supply outstripping demand to such an extent you can afford to be bearish on your future assumptions, so you can de-risk the cash flow, to an extent. That way if things actually get better and the market stabilises, they could be in a position to truly outperform.”
Key shopping centre deals, Q1-Q3 2019:
- Cameron Toll Shopping Centre, Edinburgh (sold to Franklin Templeton for £38.5m)
- intu Derby (50% stake sold to Cale Street Investments for £186.3m)
Key retail warehouse deals, Q1-Q3 2019:
- Abbotsinch Retail Park, Paisley (sold to Ashby Capital and Quadrant for £67m)
- Poole Retail Park (sold to NewRiver REIT and PIMCO jv for £44.7m)
- Brookfield Shopping Park, Cheshunt (sold to Sports Direct for £25.4m)
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