After a period in which the UK supermarket property investment market reflected the problems of the sector’s major operators, it has now recovered some ground and is proving increasingly popular with investors, according to the latest Colliers and MSCI UK Supermarket Investment Report.
The report says that despite the events of last year which muted property investment activity generally, around £1.1bn of supermarket assets were traded in 2016 - a very similar level year-on-year.
Colliers’ head of retail capital markets, James Watson, commented: “In an uncertain world, long-dated income from relatively sound covenants once again looks increasingly attractive to investors. 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.”
Sale & leasebacks by the Big Four operators (Tesco, Sainsbury’s, Morrisons and Asda) used to be a major source of asset supply to the market. However, 2016 saw no sale & leaseback activity for the first time since the early-2000s. With operators generally fighting to bring costs under control, it did not make sense to further expose themselves to factors such as inflation over which they have no control.