June 2025
The occupational market is driving attractive running yield performance where rents have been re-based and tenant demand has remained robust, while the debt market has turned the corner.
Shopping Centre investment volumes reached £2bn in 2024, making the year the strongest market volume since 2017.
This positive momentum has continued into 2025 driven by increasing investor appetite.
“The shopping centre buyer pool is increasing, pushed by a strong occupational market and more favourable debt terms, combined with historically attractive yields” said James Waldock, GCW director.
In dominant locations, the occupational market is driving attractive running yield performance where rents have been re-based and tenant demand has remained robust. In selective prime locations, shopping centres are beginning to witness occupational tension which in some cases is translating into rental growth.
The debt market has also turned the corner, with more robust cashflows supported by compelling business plans attracting lenders back into the market.
Reduction in Interest Rates.
This together with reducing interest rates, is leading to increasingly competitive debt terms offered to prospective purchasers helping to fuel returns. Not only are the rates of interest improving, but LTV’s are also on the rise.
However, as we progress into Q2 2025, we have witnessed limited openly marketed shopping centre opportunities to meet this growing investor and lender demand.
Some of those vendors who were looking to sell are monitoring market improvements, waiting for the right time to maximise price. Other prospective sellers will have been benefitting from the change in the markets fortunes and can now re-finance assets on increasingly attractive terms thereby moving these centres from a “sell” to a “hold”.
The improving debt market will also lead to less forced sales – for so many years a consistent source of available stock.
Competitive Bidding.
This supply/demand imbalance is in most cases leading to competitive bidding and yield compression, particularly for dominant assets offering scale. Those assets underpinned by high residual value with future development potential are also attracting significant interest.
We do expect that stock flow will markedly increase in the second half of the year, with several centres being prepared for sale into a rapidly improving market. Timing of these sales will be key, with vendors moving quickly likely to capitalise on latent investor demand, thereby gaining 1first mover advantage.
Two-tier Market.
We do, however, find ourselves in a two-tier market.
The appetite from core institutional and REIT investors has certainly grown, but the demand from these buyers is very selective and limited to super-prime/destination shopping centres with ESG credentials, of which there are few.
Where these assets have been available, it has often been in the form of stakes, and existing owners have stepped in to acquire. We saw this in 2024 with Norges, acquisition of a 50% stake in Meadowhall, Landsec taking its stake up to 66.5% in Bluewater, M&G acquiring the other 50% of Cribbs Causeway, Bristol and Hammerson taking control of West Quay, Southampton.
“While it’s a positive sign for the market that these core investors are trusting super prime shopping centre investment again, it has restricted flow of high-quality stock to the open market,” said Waldock.
In our last investment bulletin (September 2024), we highlighted the lack of “core+” capital targeting the market. As a result, centres which remain dominant but fall outside of a “super-prime” category will certainly attract significant interest, but from investors with higher return hurdles, predominantly from the Private Equity stable.
Intensive Business Plans.
These buyers are focused on acquiring centres with underlying strong fundamentals at attractive yields to implement intensive business plans and then exit in 4-5 years’ time to buyers with a lower cost of capital.
This remains a compelling thesis for many investors targeting the UK shopping centre market and is leading to a depth of buyers for assets that fall into this category.
To sum up, the outlook for the UK Shopping Centre investment market remains strong. As ever, stock selection remains key, but well located, dominant centres remain available at historically attractive prices.
The challenges faced in the office sector, and tight yields on offer in the industrial market has helped promote shopping centre investment up the agenda.
There are potential bumps on the horizon, with this month’s increases in National Insurance contributions, and the National Living wage putting the squeeze on retailer margins. However, the best locations and occupiers will continue to thrive, and with occupational costs broadly re-based, we don’t anticipate a marked impact on the positive occupational and investment market trajectory.