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AEW: Shopping Centre Yields Look Good As Market Revives


Yield stabilisation in the fraught UK shopping centre sector, combined with the prospect of attractive rates of return, is bringing both buyers and sellers back to the market.

New data from AEW showed that the precipitous plunge in values of the last two years has largely ended. The newly reset market promises the kind of yield curve many investors have been looking for.

AEW Europe is taking its own advice seriously, and hoping that buyers do too. Together with the Teacher Retirement System of Texas, it is clearing the way to the £140M sale of Basingstoke’s Festival Place Shopping Centre, React News reported. The partners paid £285M in 2015.

A long list of forthcoming shopping centre sales includes the £150M disposal of the Leicester Highcross Shopping Centre by Hammerson and its partners M&G Real Estate and Norinchukin Bank; and a brace of disposals by Capital & Regional plc.

Last month Capital & Regional completed the £40M sale of The Mall, Blackburn, to Adhan Group.

The sale, agreed earlier this spring at a shade above the December 2021 valuation, represented a sale price fathoms below the £120M paid in 2004.

The 600K SF centre was refurbished and extended in 2011 at a cost of £60M. Tenants include Primark, Next, Boots and the town’s market.

Capital & Regional is testing the market again with the £80M sale of Luton’s 900K SF The Mall shopping centre. Tenants include Primark and Lidl.

Analysis from AEW showed how far the market has changed.

Data suggested that almost all major UK markets — including London, Birmingham, Bristol, Leeds and Edinburgh — are now rated as attractive by investors after an analysis comparing the required rate of return and the expected rate of return for the next five years. Only Manchester is judged to be 'neutral' because the gap between ERR and RRR is 20%, indicating neither over- nor underpriced.

Prime retail yields have stabilised, according to the report, authored by AEW Europe Head of Research and Strategy Hans Vrensen.

Trends are in lockstep across the Eurozone and the UK. Since 2017 shopping centres and high street yields have repriced by 120bps and 70 bps respectively. Average shopping centres yields reached 5.6% in 2021 and are expected to narrow to 5.5% in 2022 and remain stable to 2026.

In comparison, average high street yields bottomed out at 3.6% in 2017 and increased to 4.1% in 2021, where they are expected to remain until 2026.

AEW concluded that shopping centres offer 140bps excess spread of expected rate of return over required rate of return, well ahead of the 25bps spread in all property types. High street retail, in contrast, offers an average negative spread of 30 bps.