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Real estate investors are increasingly competing to snap up UK supermarkets as a lack of new locations and slow planning processes weigh on developments.
Grocery properties are “proving to be one of the most resilient and attractive investment sectors”, according to research by Colliers.
Experts at the real estate firm said international and UK investors are still seeking to cash into the industry despite high borrowing yields and uncertainty in the wider economy.
In recent years, many supermarkets and other retailers have sought to boost their balance sheets by selling off properties and leasing them back under contract.
This has led to the growth of real estate investors and trusts focused on snapping up assets in the sector.
Colliers said the limited number of supermarkets available on the UK market recently and reduction in interest rates have made the capacity to snap up sites much more competitive over the past year.
Mark Girling, executive director of Retail Capital Markets at Colliers, said: “The supermarket subsector’s inherent stability and scale has always attracted real estate investors.
“However, in the past year the imbalance between investment opportunities and available capital has tilted in favour of sellers.”
Mr Girling also indicated that activity has been focused towards particularly strong and resilient assets, Tesco and Sainsbury’s identified as the most traded retailers last year.
There are expected to be more deals this year as debt-laden rivals Morrisons and Asda consider sale-and-lease-back deals for their stores in order to bring in more cash and shore up their finances.
Mr Girling added: “Supermarket real estate continues to offer attractive risk-adjusted returns, especially given the stability of long-term leases and steady consumer demand.”
There have also been major deals in recent months, including the £403 million joint venture deal between Supermarket Income REIT and Blue Owl Capital, which is aiming to grow to be worth £1 billion.
A number of non-grocery stores have also been snapped and converted into supermarkets over the past year as growing populations have also increased food demand.
Last year, Sainsbury’s agreed to buy up to 10 stores from collapsed DIY and garden retailer Homebase to convert them into supermarkets in sought after out-of-town retail locations.
Matt Hobbs, head of retail lease advisory at Colliers, said: “Grocery retail’s expanding footprint highlights both the opportunities and complexities of acquiring and repurposing large retail stores.
“These latest transactions are likely to shape open market rent review negotiations in the coming months.”
