25 June 2014 | London
What this flagship UK shopping centre transaction really means for retail real estate investment.
By James Brown | Jeremy Eddy
The sale of a 30% stake in Bluewater to Land Securities, is a bellwether of investor confidence in the future of the physical space, in an increasingly virtual world. Despite the obvious and evolving challenges facing retailing and the impact of e-commerce in particular still playing out, dominant retail places that fulfil consumers’ and retailers’ requirements, will continue to thrive and provide investors with strong defensive cashflows.
Despite the lofty reported price tag of £656m for 30% of the centre plus £40m for the full asset management rights and 110 acres of surrounding land, valuing the scheme at c£2.2bn overall, investor interest in Bluewater was strong. With circa 10 parties showing serious interest and with the ultimate reported yield of 4.1% reflecting the attractiveness of the asset in the market and including considerable further value associated with the management of the 100% interest. Investors are buying increased levels of certainty when they invest into these resilient retail places. A combination of strong local economic fundamentals; connectivity; diversity and vitality; identity; and dynamic and proactive management, contribute to Bluewater’s resilience. The outlook for these top flight schemes across Europe is pretty clear, and this has been recognised in the investment market with circa 20 schemes of over £300m trading across Europe (outright or stakes) over the last five years.
Whilst standard investment criteria will apply, the shootout between the UK’s leading REITs is partly driven by the underlying importance of gaining access to international brands and then leveraging retailer relationships across portfolios. The new owner/ manager also benefits from the vast value of consumer and retailer insight – strengthening market expertise. Across Europe, the marriage of equity and expertise remains prevalent, with generic “sovereign wealth and liability driven investors” willing to cede majority ownership and control to sector specialists providing an increasingly flexible percentage of equity alignment. The scale of these assets has resulted in an increasing fragmentation of ownership. Few of the top assets by size in the UK, have 100% ownership, this acts to limit specific asset risk and accommodate the maximum ticket size of the larger investors.
Liquidity at this end of the market is remarkably robust due to the limited supply of stock and the longer term hold requirements of the owners of these types of schemes. And whilst this is creating pricing tension at the prime end of the market, many investors are being forced to move up the risk curve, to compete or to generate required returns. This ‘increased risk‘ is manifested through broadening geographical focus beyond core markets, or by looking at more secondary retail assets in core markets. The outlook for the better secondary market is certainly becoming clearer and robust due diligence and an healthy appreciation for both the challenges and opportunities facing retail can help sort the ‘good from the bad’. Challenges still remain for the rest.
James Brown | Head of JLL European Retail Research and Consulting
“If the basic principles of demand and supply are still applicable in retail, then the supply needs to respond to the changing demand for space. Put simply, in some locations retailers’ and restaurateurs’ demand for space is increasing, whereas in others it is diminishing. If physical retail places are relevant and appropriate they will thrive. Bluewater was built in 1999 but remains both relevant and appropriate, obsolescence will eventually prevail in increasingly ‘irrelevant’ places, unless they are redefined.”
Jeremy Eddy | International Director, JLL European Capital Markets
“The investment market is clearly able to identify and pick the winners, the challenges and opportunities lie in navigating the rest of the market. Buying Bluewater will give Land Securities valuable insight into customers and retailers in a market that is facing structural change. It will also give them increased exposure to international brands. International brand access, specialist consumer, retailer, and real estate knowledge is more important today than it has been since the birth of the mall.”
If you would like to find out more about how JLL sees the retail landscape changing, visit JLL Redefining Retail Places.
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