UK shopping centres

Citation

(1999), "UK shopping centres", Property Management, Vol. 17 No. 1. https://doi.org/10.1108/pm.1999.11317aab.017

UK shopping centres

UK shopping centres

Keywords Retail centres, Statistics, Valuation

Shopping centre values have breached the record levels set at the end of the property boom of the late 1980s according to the latest Shopping Centre Index published by Donaldsons, the leading commercial property agents.

The total value of all the shopping centres in the UK is now estimated at over £21 billion, a new record (which compares with current market capitalisation for all London Stock Exchange quoted property companies of £32.8 billion).

Shopping centre rents grew fastest last year in Greater London with a 10.3 per cent increase. The next fastest growth was in the East Anglia and East Midlands region and the North-West, with an 8.1 per cent increase; Yorkshire and the North with 7.5 per cent; Southern England with 7.3 per cent; and the West Midlands with 4.1 per cent. The lowest rental growth was in Scotland with just 3.9 per cent and the South-West and Wales with 4 per cent.

Within the figures, Donaldsons points out that over the last five years the largest centres' rental values have grown at four-and-a-half times the rate of the smallest centres. Centres built since 1990 also had faster rental growth than those built before 1990. Shopping centre capital values across the board rose by 10.2 per cent last year, meaning that total returns (income plus capital growth) were 17.3 per cent. This was a better total return than in any year except 1988.

However, according to Edmund Camerer Cuss, of Donaldsons: "Last year centres had a mediocre spell in terms of rental growth and our view is that retail centres' future rental growth will slow".

Fund investment in property centresUK fund managers' investment in shopping centres is also at a record level, representing 19 per cent of the funds invested in property compared with 17per cent for the previous year. There was a very high level of transactions recorded during the year. Funds purchased a record number of 23 centres for a total value of £957 million. They also sold a record number of 28 centres for a total of £1,053 million.

The average value of those purchased was £41.6 million against the average value of £37.6 million for those sold. "This reflects a preference for larger and newer centres", says Edmund Camerer Cuss. "In addition, the yield premium now regularly paid for the large schemes has been mainly justified by their rental value growth. Ten years ago these larger schemes traded at a yield discount".

The research also reveals that improvement expenditure spent by landlords last year was £116 million, the lowest sum for over ten years and at under 1 per cent, the lowest proportion of improvement expenditure to capital value since 1982.

"The continuing shift to better quality and lower yield stock puts an even greater emphasis on rental growth for the attainment of desired returns", says Donaldsons. "Easing of rental growth, in the absence of continuing downward movement in market yields, will lower total returns in the near future. Given the existing record low yields already, buyers now are seen to be moving into uncharted waters.

It will be interesting to see, too, whether the Government's transport proposals will begin to affect market sentiment."

Analysis also showed that there was no evidence of association between the rental performance of centres and their neighbouring high street. "Strong centres neither help nor hinder the local high street and are less affected by the local demand/supply pressures for retail units", comments Edmund Camerer Cuss.

Valuation methods should be revisitedDonaldsons also argue that shopping centre valuation methods needs reviewing.

"The discounted cash flow approach, favoured by increasing numbers of valuers, more clearly demonstrates the basis of current values than does the 'comparables' approach, which makes the market look overvalued in historical terms", says Edmund Camerer Cuss. "The time has come to break with the past and stop pretending that the comaprables valuation method works properly on centres."

Basis of researchThe Donaldson's Shopping Centre Index is based on data supplied by Investment Property Databank. The sample now covers more than half of all UK shopping centre floorspace ­ 67.4 million sq m (72.6 million sq. ft), 14,800 tenancies, 305 ownerships worth over £11.75 billion.