Investment into “safe haven” supermarkets continued apace in 2011



Investment into supermarkets dwarfed demand for the rest of the UK commercial property market in 2011 – relative to its market value – and the retail sector in general, as risk-averse investors continued to view the sector as a safe haven, according to IPD and reported by Property Funds World.

“Supermarkets attracted significant investment, due to their status as almost “super- prime” assets. They have the ability to secure long leases which are often RPI-linked, thus providing income security, a genuine inflation-hedge and good diversification for a fund or portfolio dominated by traditional open-market leases. In 2011, our sample saw net investment amounting to 13% of total capital value, while the retail sector only saw investment of 3.2%” says Greg Mansell, Senior Research Manager at IPD.

James Watson, Partner at Briant Champion Long, says: “Over GBP1.15bn of investment transactions were recorded in 2011 in this expanding sector, at an average net initial yield of 4.7%. Institutions dominated, accounting for 81% of all acquisitions, although private investors are beginning to account for a larger proportion of acquisitions, particularly for sub GBP20m lot sizes. Investors are attracted by the quality of the often index-linked income and the health of the occupational sector, which continues to experience rental growth.”

The UK Supermarket Investment Report, prepared by IPD in association with Briant Champion Long, is the first of its kind to specifically analyse the performance of supermarkets as an asset class. The sample covers 252 supermarkets across the UK, valued at GBP5.8 billion in Q4 2011, and includes analysis based on 56 investment transactions and 102 occupier transactions.

Total return in 2011 amounted to 7.9%, compared to 7.8% for all commercial property, and 7.1% for all retail property. However, in Q4 2011, when the UK market was deteriorating, with capital falls of -0.1%, supermarkets continued to see growth, of 0.5%, leading to a total return of 1.7%.

Investors into the UK market are specifically focused on the risk to their income stream. In a market where lease lengths have typically been declining, supermarkets are one of the safest assets to invest in, with an unexpired lease term of 15.8 years, compared to 11.5 years for the retail sector, and 10.2 years for the all property average.

At the same time, supermarkets provide the safest tenant covenants of any commercial property sector. Supermarket occupiers achieved an average risk score of 94 out of 100 in Q4 2011, as independently verified by D&B (Dun & Bradstreet), while the average all property and retail scores were 80 and 82 respectively.