U.K. Supermarket Transactions Increase 50 Percent

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Supermarket property transactions in the U.K. totaled £1.8 billion in 2013, increasing a whopping 50 percent from the previous year. 

Investors continued to buy into long-term, index-linked income, despite a problematic year for supermarket operators, according to the latest report from IPD and Colliers International. 
Supermarket investments provided a total return of 11 percent per annum in 2013, higher than the return for retail (9.6 percent) and "all property" (10.5 percent).

An IPD analysis of just under £6 billion of U.K. assets shows that the average unexpired lease for a supermarket is a little more than 20 years, almost 12 years longer than the standard retail average.  

"In a continued environment where gilts remain relatively unattractive, interest rates are low and bonds are low-yielding, investor demand for supermarket investments is set to continue," Colliers International head of U.K. Retail Investment, James Watson, said in the report. "There is a considerable weight of money looking to buy these assets and we are now seeing a broadening buyer base." 

Institutional investors continue to dominate the market, accounting for 77 percent of all purchases in 2013. However, overseas buyers have started to make an impact and accounted for 11 percent of purchases last year.  

Even though the supply of supermarket assets has been decreasing as major operators are more conservative with expansion plans, IPD and Colliers expect more than five million square feet of new supermarket development this year.  

"A general retreat from the large-scale 'Death Star' stores which created substantial investment opportunities has coincided with a push into smaller, neighborhood convenience stores as retailers look to address geographic gaps in their representation across the U.K.," the report states.  

In December, a report from CBRE showed the U.K. supermarket development pipeline surpassed that of shopping centers for the first time ever.