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Grocery-based retail assets high on funds’ shopping lists

While questions hang over non-food retail assets, investors’ hunger for grocery-based retail real estate appears unabated in Europe.

In Germany, property investment manager Barings Real Estate has acquired a newly built retail park in Bad Kreuznach, near Frankfurt, for €13 million.

The acquisition, from local developer, REBA Residenz Bauträger, was made on behalf of a separate account mandate for SIS.

The property, which is about 3,900 sq m is 100% let on long leases to two tenants: supermarket chain REWE, which is Germany’s second largest retailer; and drugstore dm Drogeriemarkt. Bad Kreuznach, which is situated 45 minutes from Frankfurt, has a population of approximately 50,000. The park is within walking distance of the town’s north-western residential areas.

“Our confidence in the long-term outlook for essential and food retail remains positive,” said Barings’ managing director, head of real estate transactions – Europe Gunther Deutsch. “E-commerce penetration in the supermarket sector is still at low levels, largely due to the cost implications for cheap delivery, and we believe spending in this category could increase in the near term due to the impact of COVID-19.”

There are examples too in the UK where investors have bought stores let to grocery retailer Tesco.

Supermarket Income REIT paid £39.5 million for a store operated as a Tesco supermarket in Berkshire town Bracknell from a client of CBRE Global Investors. The purchase reflected a net initial yield of 5.7%. Tesco has 10 years unexpired on its lease with annual, upward-only, RPI-linked rent reviews.

Meanwhile, in Corby, Northamptonshire, private equity property investor Henley and property investor Aprirose have sold the freehold interest in a 113,332 sq ft (10,500 sq m) Tesco Extra supermarket.

The price quoted was £47 million, Tesco has 19 years remaining on its lease and pays rent of £2.55 million per year. Henley and Aprirose bought the asset in 2013, shortly after it was constructed.

Ian Rickwood, CEO of Henley commented: “This sale represents the joint business plan for this property being realised, despite the market uncertainty bought about by COVID-19.”