Property Analysis - Investment frenzy as deals treble over three months

The shopping centre investment market has made a spectacular comeback, with a 332 per cent rise in completed transactions during the third quarter, putting the market on track for another strong year.

According to the latest statistics from DTZ,£1.25 billion worth of UK shopping centres changed hands during the three months, making it the second-busiest quarter on record. This compares with just£376.9 million of turnover in the second quarter. During the year to date,£2.65 billion of deals have taken place, compared with£2.63 billion for the first three quarters of last year.

However, the number of deals in solicitors' hands is probably not sufficient for 2003 to beat last year's record turnover, according to DTZ head of retail Mark Williams. 'The final quarter of 2003 is expected to mirror the levels of activity seen throughout the rest of the year, mainly because of the shortage of available stock, with the expectation that total transactions will be slightly under the 2002 record of£4 billion,' he says.

The largest transaction in the third quarter was Isis Property's injection of the£115 million Castle Mall shopping centre in Norwich into The Mall Fund. The move gives Isis about 10 per cent of the£1.1 billion fund set up by Capital & Regional and Morley Fund Management.

In terms of the types of purchasers, the third quarter saw a shift in buying requirements, with the property companies, such as REIT and Catalyst, coming back into the market, while the institutional investors have been net sellers of shopping centres.

Requirements from overseas investors have grown, and DTZ predicts an increase in buying from this sector over the next two quarters.

Chasing small fry

For the smaller lots, aggressive interest from private buyers and small property companies has continued. As evidence, DTZ points to the competitive bidding on the Priory Meadow shopping centre at Hastings in East Sussex, which is under offer to a private investor at£61.5 million, reflecting a net initial yield of 6.9 per cent.

Geographically, the quarter was dominated by the Northwest, with 44.8 per cent of transactions, followed by the Southeast, with 28.7 per cent, and East Anglia, with 11.5 per cent.

Activity levels are expected to remain buoyant, with£114 million worth of shopping centres deals exchanged and due to complete in the next month alone. These include Park Lane Estates'£48 million purchase of the Stamford shopping centre at Altrincham in Cheshire, Boultbee Land's purchase of the Newland shopping centre, at Kettering in Northamptonshire, for£32 million, and Sellar Properties' purchase of the Ladysmith shopping centre, at Ashton-under-Lyne in Greater Manchester, for£34 million.

In addition, DTZ calculates there are£562.5 million worth of shopping centre deals that are in solicitors' hands and due to exchange in the next quarter. These include the Castle Quay shopping centre at Banbury in Oxfordshire, which is under offer to Scottish Widows for£102 million.

Universities Superannuation Scheme is rumoured to have found a purchaser for its Midsummer Place shopping centre in Milton Keynes, which has a£200 million-plus price tag. Hermes and Prudential, which own the adjoining Centre:MK, are among the front runners.

According to Williams, valuers will be watching this deal particularly closely, because there has been very little prime stock going through the market. Evidence that yields for secondary properties have hardened has already emerged, with Bourne End's sale of the Dumfries shopping centre in Scotland seeing a 6 per cent initial yield.