The supermarket property investment market in the UK is proving increasingly popular with investors, according to the latest Colliers International and MSCI UK Supermarket Investment Report.
Despite the relatively muted property investment market in 2016, close to £1.1 billion worth of supermarket assets were traded last year, which is a similar level to that of the previous year.
“In an uncertain world, long-dated income from relatively sound covenants once again looks increasingly attractive to investors,” said Colliers’ Head of Retail Capital Markets, James Watson.
“The main structural concern about the current market is supply. Without substantial development programmes and an absence of sale & leasebacks, it will become increasingly difficult to source the best supermarket assets”.
The year 2016 saw no sale and leaseback activity among the ‘Big Four’ supermarket operators (Tesco, Sainsbury’s, Morrisons and Asda), with Colliers stating that operators were fearful of exposing themselves to factors such as inflation, owe which they have no control.
‘In contrast, Tesco has become a net buyer of stores as it continues to exercise ‘buy back’ options to mitigate its exposure to property cost,’ Colliers said. ‘It is estimated that Tesco has spent around £450m on store acquisitions in the past 18 months.’
Colliers also said that there was evidence that the rapid growth seen by Aldi and Lidl in the past few years is starting to slow.
“In 2014, new Aldi store openings only contributed around 27% to total sales growth, but this figure had risen 83% in 2016,” said Watson. “However, if the contribution of new stores is stripped out, year-on-year sales growth for the chain’s existing stores in 2015-2016 falls to less than 2%.”
Colliers expects 2017 to be a more positive year for the sector, the study found.
The health of the UK supermarket sector is, of course, relative and with margins still under pressure, unprofitable stores will need to be tackled wherever possible as they are negatively impacting bottom lines which remain strained,” said Watson.
© 2017 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
