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UK shopping centre pricing to stabilise next year as CVA season runs its course

Yields have pushed outwards for all asset classes with prime just ticking above the 10-year average in 2019, added CBRE.  Alongside macro-economic factors, uncertainly in the retail investment market has been driven by poor retailer trading and Company Voluntary Agreements (CVAs).

CBRE says the bulk of CVAs have now been carried out and expects a stabilisation in rental value in H1 2020 that should, in turn, stabilise pricing. In development, shopping centre completions will contract in 2019 with no significant new schemes due to open. Future shopping centre development is focussed around two major schemes: Edinburgh St James and Battersea Power Station, with the latter to open in phases from 2021.

Elsewhere, investment in UK retail parks is also expected to be below the long term average for the full year 2019, as subdued sentiment from H1 continues into the second half. Brexit uncertainties will compound the wider issues facing the retail market, although CBRE does expect retail parks to perform better than shopping centres and high streets.

Retail park yields have been expanding since mid-2018 where all sub-sectors moved above their 10-year trend line, according to CBRE data.  Unlike most other retail sectors, the yield expansion has been felt equally by prime and secondary assets. Prime open yields have risen to 6% (up from 4.75% in July 2018) and Secondary yields are 8.5% (7.25% in July 2018).

Despite a weak 2018, transaction volumes of £688 million in H1 suggest 2019 will be well below the 10-year average of £2.3 billion, according to CBRE. Overseas investors have reduced investment to 9% of the total in H1 2019 (down from 21% in H2 2018) while property companies have accounted for 42% of the total – up from 24% in H2 2018.

james.wallace@realassetmedia.com