Improved UK supermarket performance sparks property investment surge

Property investors sunk £1.78bn into the UK grocery sector during 2019, with volumes up 80% year-on-year according to Colliers International’s annual UK Grocery Report.

According to Colliers, the improved financial performance by the UK’s major grocery operators triggered “concerted buying of supermarket property investments”.

The report also found that the average return from a supermarket property investment achieved during 2019 was 5.1% net initial yield. Colliers said investors were “attracted” to the assets because most leases stipulate rental increases in line with the Retail Price Index.

Additionally, Colliers’ head of retail capital markets, Tom Edson, said that despite the “economic uncertainty” of last year, there was “generally improved trading performance by the major operators” – a trend which was underlined when the rating agency, Moody’s, moved Tesco back to an investment grade rating in July.

He added: “Investors looking for property assets which offer solid returns underpinned by solid corporate covenants targeted the sector and took buying to levels that haven’t been seen since 2013. We have now seen capital market volumes in the sector of more than £1bn annually for the past decade.

“During a period when UK retailing – and the property market it supports – has continued to be the subject of negative sentiment, the grocery sector has been the stand-out performer.”

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