The market for UK shopping centres has all but frozen up as buyers struggle to assign values to properties affected by troubled retailers restructuring their leases.
Just £20m of shopping centres changed hands in the first quarter of this year, according to data from CoStar, against a 10-year quarterly average of £783m.
That was the weakest quarter since at least 2003 and “probably this century”, said Mark Stansfield, head of UK analytics at CoStar.
Retail formed a core part of most real estate investors’ portfolios until the current downturn in the sector, which was prompted by retailers’ battles with higher costs and the transition to online sales.
But properties, including retail parks and shopping centres, made up only 9 per cent of transactions by value in the first quarter — down from 12 per cent last year and about a third in the 2008-2011 period, CoStar said.
Mark Garmon-Jones, director of UK retail investment at the property agency Savills, said the slow market was because of “occupational uncertainty, and political and economic uncertainty around Brexit”.
Investors are concerned about shopping centres’ exposure to retailers such as Debenhams, which announced a restructuring of its leases on Friday, and Arcadia Group, which is expected to carry out a similar process, he added.
The cost of borrowing against retail property assets has doubled over the past four years, according to separate data from Laxfield Capital, a private equity firm that monitors loan requests by property owners in the UK.
“In what feels like the blink of an eye, retail has moved from core to a specialist asset class, and battering headwinds show no signs of abating yet,” said Emma Huepfl, director at Laxfield.
She said that a rash of company voluntary agreements — an insolvency procedure used by retailers to restructure leases — had led to uncertainty over the value of the income from retail properties. Lenders “are struggling to make a risk based assessment of how far the downside could go,” particularly for less favoured “secondary” centres, she said.
However, Mr Garmon-Jones said a variety of investors were eyeing the troubled sector, including private equity firms on the hunt for distressed assets, listed property companies looking to redevelop sites, and buyers who believed parts of the sector had been oversold, with everything “tarnished with the same negative brush”.
Among the trickle of shopping centres changing hands were some redevelopment opportunities. Bards Walk shopping centre in Stratford-upon-Avon was sold for £7.25m in the first quarter to investor Cervidae, which said it looked forward to “converting the upper parts into a viable use for the town centre”.
Ms Huepfl added: “We are not yet near establishing stability because there is too much retail space for the real need. That hasn’t settled down yet and the redundant assets haven’t yet found a new purpose. That’s where future opportunity will lie once the market has bottomed out.”
