Investment Outlook

The key takeaways from Savills Shopping Centre and High Street Spotlight report

Following a relatively quiet year marked by the pandemic, 2021 was a return to form for the shopping centre investment market, according to Savills’ latest Shopping and High Street Spotlight report. Throughout 2021, 74 schemes changed hands resulting in turnover of £1.5 billion – a significant jump on the £341 turnover from the 20 deals that occurred in 2020.

One of the key changes in the final quarter of 2021 was the return of larger deals, with two assets of over £100m being traded in December. There was also substantially more activity in the mid-sized scheme bracket across the year, with 16 deals between £20m and £50m, compared to only four in 2020.

Savills said that the opportunistic tone of the market kept prime yields high, defining a prime scheme as freehold and not too large a lot size, as well as having the opportunity to densify or diversify the mix of uses on the site. The most important factor that defined a desirable scheme in 2021, and one which Savills said will continue to define it in 2022, is its occupational health, and whether or not it has delivered a positive rent collection story during the Covid crisis.

“This need for clarity and transparency is one of the reasons why outlet centres remained popular with investors last year, due to the high level of turnover data that is available to their owners,” said the report. “We have no doubt that 2022 will continue to deliver a challenging occupational environment for all of retail, though it is becoming apparent that some retailers fared very well over Christmas.”

The report also anticipates another step up in the volume of trade in the market this year as investors buy in anticipation of yield hardening, which should mean that the total volume of shopping centre investments traded in 2022 is likely to surpass £2.5 billion for the first time since 2016.

Conversely, Savills reported that on the high street the overall volume of shops traded in 2021 was marginally down on 2020 at £2.6 billion, making 2021 the lowest year for the last decade. The most notable change in tone was the return of the income-focused buyer to the market.

Looking ahead, the report said there is unlikely to be a dramatic change in investor attitudes to high street shops, but that there will be more evidence that rents have rebased as agile working has boosted footfall and trade in some locations.

Savills added: “These factors, combined with the comparatively attractive prime yields on offer, should bring more opportunistic investors back into the market.  However, the limited number of larger assets that are available in this sector will mean that institutional buyers will remain less active than private investors. Further selective yield hardening will happen, and we expect that our sector yield will be 6% by the end of the year.”

This was first published in Retail Destination Fortnightly. Click here to subscribe.

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