Estates Gazette feature: Plan ahead carefully to make a profit from retail assets
An unusual deal closed in Ipswich this February – a deal that defied a trend plaguing retail landlords across the country. What made this transaction special was not an eight-figure sale or a low single-digit yield; what made it special was that it made money – a lot of money – after two years of asset management.
Adding value should not be news, but it is. When Capital & Regional sold Buttermarket Shopping Centre in February for £54.7m – more than five times the £9.6m it paid for the shopping centre in 2015 – it became one of the few to take a secondary asset, add significant value to it and then sell it on.
According to EG Research data, since 2010 five shopping centres have been bought and later sold for at least double the original price – while a quarter have lost value, despite asset management.
The fundamental mistake asset managers make with shopping centres is not having a broad vision for their sites, says John Prestwich, consultant at Montagu Evans
. “There are very few landlords that are focused on the secondary marketplace who have a proper strategic vision in terms of turning around the shopping centres they own.”
This is part of the reason, Prestwich says, that councils have started buying up more shopping centres themselves. Councils are able to incorporate retail and leisure into broader redevelopments that they have funding for and focus on what its residents need. In Stockport, for example, the local authority bought the Merseyway Shopping Centre last April as part of a £900m regeneration scheme, while Leatherhead bought the Swan Centre that same month, calling it a “significant component of the draft masterplan for Leatherhead town centre”.
Into the void
While having no broad vision for a shopping centre leads to an almost certain downward spiral, it is not always the landlord’s fault. Rather than being able to carry out a fully formed plan, some landlords with failing shopping centres, Prestwich says, are “caught holding the baby”.
In centres with low occupancy, landlords will have to pay empty rates, insurance and the service charge allocation while receiving little rental income and making loan repayments. As a result, there is little financial liquidity to carry out a wholesale redevelopment. Prestwich says: “They try to address it by way of short-term measures but ultimately that has been the sticking-plaster approach, which just has not succeeded, and the banks make their move.”
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Publication: Estates Gazette