Shopping centres back in demand, says new report
Sentiment within the shopping centre investment market has begun to improve, as a growing number of investors pursue opportunities within the previously out-of-favour sector, according to a report from property consultancy Lambert Smith Hampton (LSH).
The report found that whilst there are still serious challenges facing many UK shopping locations, recovering retail occupier demand, stabilising asset values, and an improving debt market are all boosting investor confidence.
According to LSH, shopping centre investment volumes hit a seven-year high in 2024, with £1.3bn of assets transacted during Q1-Q3. Whilst local authorities and investors seeking repurposing opportunities have propped up some activity in recent years, this uptick reflects an increasingly broad range of investment rationales and buyer types.
The report also found that the prime end of the market has seen a revival in activity, with stakes in two of the UK’s largest shopping centres, Meadowhall and Bluewater, trading earlier this year. LSH said the prime market is being buoyed by the return of several institutional investors and real estate investment trusts that have been absent from shopping centre transactions in recent years.
However, LSH found that the most prolific investor in shopping centres this year has been Mike Ashley’s Frasers Group. The retail group has acquired Frenchgate Shopping Centre in Doncaster; Fremlin Walk, Maidstone; St Nicholas Arcades, Lancaster; and Princesshay, Exeter. Whilst the deals have benefits for Frasers’ retail business, enabling it to expand the footprint of its own brands, the group has also been able to take advantage of attractive pricing levels.
Improved sentiment in the shopping centre investment market is also mirrored by signs of recovery in the occupier market, said LSH. Surviving the challenges of the pandemic and the cost-of-living crisis, an increasing number of major retailers are now looking to grow. Value retailers including The Range, B&M, Home Bargains, and Poundland have proven resilient, whilst an emerging trend is the roll-out of more compact, centrally-located stores by traditional retail warehouse occupiers such as B&Q, Screwfix, Dunelm, and Pets at Home.
Despite this, many underlying structural challenges still face shopping centres. Vacancy rates remain high in many centres, especially those that have struggled to reoccupy large units vacated by collapsed retailers such as Debenhams and Wilko. An LSH/Revo survey which was conducted earlier this year highlighted the issue of excess space – suggesting that between 20-40% of all UK retail space may ultimately need to be redeveloped or repurposed for other uses.
Sean Prigmore, LSH’s national head of retail said: “While there remain significant challenges across the shopping centre sector, 2024 has delivered encouraging signs of green shoots in both occupier and investment markets. The revival in investor demand represents a strong vote of confidence in the future of shopping centres. With institutions and REITs returning to the investment market, and private investors remaining attracted by value and income opportunities, shopping centres are now being targeted by a more diverse range of potential buyers than has been the case at any time in the last decade.”
Dr Steven Norris, national head of planning, regeneration, and infrastructure at LSH, added: “Shopping centres provide unique opportunities for the delivery of regeneration projects in the heart of the UK’s towns and cities. As large assets that are usually under single ownership, strategic and holistic decisions can be made about future use mixes in a way that is rarely possible on high streets where ownership is more fragmented.
“LSH’s multi-disciplinary team is taking a key role in many of the UK’s most important shopping centre repurposing and regeneration projects. We are helping to deliver transformational schemes by providing expertise at all stages of the planning, design and development lifecycle.”