(1).jpg "The Arcades, Manchester")
With the second half of 2015 now well underway, we are forecasting that total transaction volumes in the UK shopping centre market could reach £6.5 billion by year end, compared with £6.44 billion in 2014. The market certainly experienced a strong first half, with £1.634 billion transacted across 32 deals, but H2 looks set to be even stronger with 28 shopping centres under offer (worth around £1.25 billion), 48 in the market (worth around £2.24 billion) and 18 being prepared for sale (worth around £750 million).
We have also seen average net initial yields fall from 8.02 per cent to 7.2 per cent year on year, reflecting increased demand and the popularity of the sector with investors. There are a number of significant disposals coming through, such as Dundrum Shopping Centre in Dublin, Festival Place in Basingstoke and a stake in Birmingham’s Merry Hill, which we believe will see transaction volumes rise to 2006 levels before the end of this year.
Investors are increasingly recognising the premium value of shopping centres in London with extremely strong bidding as a result. In Q2 2015, the perceived rental growth and development potential at Kings Mall in Hammersmith, for example, saw competitive bidding to 4.25 per cent net initial yield. This is also apparent at Islinton's Angel Central Shopping Centre (formerly The N1 Centre) which is under offer at £34m over asking terms to clients of CBRE Global Investors, reflecting a net initial yield of 3.9 per cent.
London’s premium value is especially apparent where there are refurbishment or redevelopment opportunities available. However, the same is not true of secondary shopping centres, with many remaining on the market due to unrealistic pricing expectations, poor trade or geographical location and weak expiry profiles. Over the summer we expect yields will continue to harden for the very best product, but given the quantum of secondary stock available, these assets will need to be priced very attractively to find a home.
