Savills IM chooses retail parks for yield and distribution profile

Bahia Real retail park, Santander.

Savills Investment Management has retail parks – one of the few customer-facing retail sectors to emerge from the pandemic relatively unscathed – in its sights. After announcing the acquisition of a €60 million retail park in Spain for a pooled fund earlier this week, the firm now says it has paid £75 million for four UK assets for the recently launched UK Value Boxes fund.

The four UK retail parks, including two in England and one each in Scotland and Wales, were acquired on a combined yield of about 7.5%. The average passing rent on the four assets is £13.50 per sq ft. The average unexpired lease term is about seven years and tenants include M&S, Home Bargains, Aldi, B&M, B&Q, Pets at Home, and Iceland.

The two assets in England are Hough Retail Park, Stafford, and Princes Gate, Catterick Garrison. The fund also acquired Avenue Retail Park in Cardiff and a retail park in Aberdeen.

Savills IM’s UK retail park strategy was launched in October 2021 with the aim of capitalising on the strong income-producing characteristics of the UK retail parks sector. The fund’s focus is on parks let to grocery, discount and DIY retailers, and on assets let on low rents.

Daily needs and value make segment resilient to ecommerce

“The UK retail parks sector continues to demonstrate resilience to e-commerce trends given the high proportion of daily necessity and value-oriented items,” said Savills IM fund director and head of UK, Harry de Ferry Foster. “These acquisitions will provide a strong yield profile to our investors and exposure to a variety of household names as tenants off very low rents.”

In Spain, Savills IM has acquired the Bahia Real retail park in Santander for one of its pooled funds, paying project developers Citygrove and Burlington €60 million in an off-market deal. The 20,000 sq m Bahia Real opened in December 2020 and is almost fully let to 23 tenants including grocery retailer Mercadona, pet supply store Tiendanimal, Sports Direct, Maisons du Monde and Jysk.

The park also has a leisure offering including a gym, multiplex cinema and restaurants. The development is located next to Valle Real shopping centre, where there are fashion brands, a Carrefour hypermarket and a DIY store.

“Relative to other asset classes, retail parks generate high distribution yields in the current market environment and exhibit great resilience,” said Savills IM managing director and head of fund management Germany Gerhard Lehner.