One of the UK’s biggest real estate investors believes that the market for shopping centres has now bottomed out – making them the ideal investment properties for savvy deal hunters. And the Obglsbys, a wealthy family that owns or has controlling stakes in over £1 billion worth of investment property, has put its money where its mouth is. The family office has recently put up £23 million into two struggling shopping centre properties.
The woes of the retail sector, particularly the traditional bricks-and-mortar retail sector, have been well publicised over the past couple of years. And the challenging retail trading environment has naturally spilled over from retailers themselves to their landlords. Shopping centres are struggling to fill their space with retailer tenants or being forced to slash rents. Often both.
The drop in income that has led to has seen many shopping centres and retail parks struggle to meet mortgages and cover overheads. Which, in turn, has seen many put up for sale as distressed or struggling assets. That’s seen valuations and selling prices plummet. Early last year, The Postings shopping centre in the Scottish town of Kirkcaldy, Fife, was put up for auction with a reserve price of just £1.
The 21-unit shopping centre, 14 units of which were vacant at the time, eventually sold for £310,000. But a shopping centre selling for a price of just over a third higher than the cost of the average UK home, and less than half the average price of a home in London, raised eyebrows. The Postings became a symbol of the bleak landscape that the UK’s retail property market had become.
But, as every investor worth their salt knows, the best time to buy any asset is at or close to the bottom of the market. And the Oglesbys believe we’ve now seen the bottom of the market for retail investment properties. If they are right, that would make now the ideal time to buy shopping centre assets.
Mat Oakley, Savills’ head of UK commercial property agrees that the retail property market will most likely bottom out in 2020 after values and rents fell by 27% and 26% respectively over 2019. However, he doesn’t think we’ve quite seen the end of the retail sector’s struggles, commenting:
“Bad retail will continue to suffer. There will be retailer failures on the March quarter day I’m sure and through next year but I think particularly in the retail warehousing sector, the turning point is going to come.”
The Oglesbys’ property investment vehicle, Bruntwood, invested £22.5 million to buy the Stretford Mall and Stamford Quarter shopping centres in Trafford, greater Manchester, in a joint venture with Trafford Council. The local council also put up £22.5 million for a 50% ownership stake in the two properties and adjacent land which the joint venture hopes to develop.
Other investors are also showing signs of having come to the same conclusion on the market as the Oglesbys. Prologis, a U.S.-based real estate investment vehicle, has paid £51 million for a north London shopping centre. The previous owner was M&G’s property fund, shuttered to withdrawals since late last year after a flood of investors moving to withdraw their capital left the fund without enough liquidity to pay more exits.
Not all buyers of shopping centres will see the same future for their property investments. Prologis is reported to see its north London acquisition as a value opportunity for conversion into a warehouse park. As the economy shifts and ecommerce takes a growing share of the overall retail market, some shopping centre investors may well see their acquisitions as conversion and redevelopment projects – adding value by turning them into different kinds of real estate.
Bruntwood is, however, planning on maintaining its two new assets as retail properties. Albeit, considering a slight reduction to the space allocated to retail and with plans for residential and office developments on the surrounding land. The company’s chief executive Chris Oglesby commented:
“We believe that these two assets, assuming they get proactive investment, have reached the lowest point in their value and their value today represents a huge opportunity.”
“There’s a huge opportunity for town centres because the shift to online for a lot of areas has probably plateaued and what people want is a community experience.”
“The biggest single factor for these town centres in my opinion hasn’t been online [shopping] – it’s been the hollowing out of towns as a result of the development out of town. We’ve got our town centres completely wrong since the 1980s and our industry coupled with civic leaders are to blame.”
While shopping centres and other retail investment properties have seen their rental income and valuations plunge in recent years, logistics properties such as warehouse and distribution centre facilities have moved in the other direction.
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