Investment activity for large supermarkets in the first quarter of the year has exceeded the first three quarters of 2022, new figures have suggested, indicating signs of a rebound.
Deals for stand-alone foodstores during Q1 totalled £330m, according to agency Font Real Estate, compared with £325m during the nine months to the end of September last year.
Researchers at Font said that while investor appetite in the sector remained measured, the market was showing evidence of a “cautious rebound” after deals dropped sharply last year.
Average yields on transactions in Q1 this year stood at around 5.9%.
The figure for Q1 excludes Sainsbury’s £431m deal to buy 21 freehold stores from joint venture partner Supermarket Income REIT.
Notable deals during Q1 included: Pimco’s £110m acquisition of four Morrisons stores from M&G, known as Project M4; Aviva’s £31m purchase of an Asda store in Hayes from British Steel Pension Fund; and the £18m sale and leaseback of a Morrisons store in Plymouth by Fiera Capital.
Tom Edson, partner at Font, said: “We are now seeing increased stabilisation across the sector, and this is bringing some investors back into the market – although concerns around increased borrowing costs and where inflation is headed remain material considerations.
“However, we can see that some confidence has returned and investment transactions have responded accordingly. We are not predicting a return to the levels achieved in 2020-2021, which saw annual deal volumes of more than £1.8bn, but with pricing discovery now being reflected in increased transactional volumes, this upturn is welcome following a very challenging 2022.”
Edson added that the pricing expectations of purchasers looking to acquire Asda or Morrisons stores were lower than on Tesco or Sainsbury’s locations, mainly owing to the new ownership structures of Asda and Morrisons.
Edson said: “Over the longer-term, grocery-backed assets have a track record of being resilient even in times of economic stress. This was demonstrated most recently during the pandemic, and we would expect that the sector – which offers long income on large urban sites and serves a non-discretionary use – will once again be the preferred choice for many investors.”
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