Two shopping developments have changed hands for lower prices than expected, raising concerns the property industry is playing “catch-up” with the structural changes affecting the retail sector.
Intu Properties, the FTSE 100 property group, confirmed at the weekend it had bought out its joint venture partner in the Merry Hill estate near Birmingham for £410m in the year’s biggest shopping mall transaction.
Australia’s Queensland Investment Corporation (QIC), which owned the stake, had originally marketed it for £500m a year ago, said Robert Duncan, analyst at Numis Securities.
Meanwhile, Intu’s rival Hammerson said on Monday it had sold the Thurrock shopping park in Essex to TH Real Estate for £93m, representing a £26m profit for the vendor but still coming in “marginally below book value as at December 31, 2015”, Hammerson said.
Mike Prew, analyst at Jefferies, said that while the two assets were very different, both were affected by “negative pricing trends”.
Mr Duncan added: “The valuers are still playing catch up when it comes to retail valuations more broadly. We are starting to see retail properties trading at weaker valuations, which may be the start of a trend.
“The role of physical retail is changing hugely. It’s not worth what it was before — space is less productive and it’s more about showrooming than selling.”
Many landlords are offering incentives such as rent-free periods to attract good retail tenants, which may not be fully taken into account by valuers, he said.
Valuations were hit slightly by an increase to stamp duty on large commercial property transactions in March, while worries over the EU referendum have also affected the property investment market.
However, Mr Duncan said there were wider concerns over whether retail property values could continue rising given the structural impact of ecommerce on the industry. Property revaluations due later this month would shed more light on the direction of prices, he said.
The collapse of two retailers, BHS and Austin Reed, this year highlighted the challenges to the sector.
Investment into retail property was down 54 per cent year on year to £1.6bn in the first quarter of 2016, the weakest quarter in four years, according to CoStar, a research group. It attributed the drop to the “ongoing impact of the internet and latent concerns over rental growth in non-prime”.
Intu bought the Merry Hill stake from QIC using a £500m loan facility. QIC made a capital loss of more than 20 per cent, having bought the whole of the centre in 2007 at the top of the market, according to Mr Prew. Intu had pre-emption rights on the remaining stake, having bought 50 per cent in 2014.