Investor interest in supermarket property has intensified over the past 12 months amid anticipation of rising rents, according to Colliers.
Grocery real estate was already proving to be one of the most resilient and attractive investment sectors, according to a report from the property consultancy.
But over the past year there has been more demand for supermarket property than supply, intensifying investor interest further.
The shift has been fuelled by a lack of new developments, as well as the potential for rental growth from the sector, according to Colliers’ annual UK Grocery report.
Appetite has also been bolstered by anticipated interest rate cuts.
“The supermarket subsector’s inherent stability and scale has always attracted real estate investors,” said Mark Girling, Colliers executive director of retail capital markets.
“However, in the past year, the imbalance between investment opportunities and available capital has tilted in favour of sellers.
“This heightened focus on the sector is underpinned by the expectation of better returns and limited new store developments.”
The report identifies Tesco and Sainsbury’s as the most traded retailers last year, and forecasts that sale and leaseback activity will increase this year, particularly involving Morrisons and Asda.
Sainsbury’s and M&S have been at the forefront of acquiring former Homebase stores – with M&S this morning announcing the acquisition of 12 to create new Food stores.
Supermarket rents will come under closer scrutiny as landlords seek to capitalise on strong occupational demand, according to the report.
Rents on many stores have been rebased to low levels in the course of lease regears over the past decade, and “the first of such properties are now coming up for rent review”, according to the report. “The true underlying level of rental value is therefore coming under close scrutiny.”
M&S’s former Homebase acquisitions illustrated the upward trend, with headline rents of up to £28 per sq ft, according to Colliers.
Matt Hobbs, Colliers head of retail lease advisory, said such transactions would “shape open market rent review negotiations in the coming months”.
Greg Styles, Colliers head of retail development and advisory, said: “Despite increasing cost pressures, the grocery sector’s fundamentals remain robust. Recent store acquisitions reflect a strategic push for market presence, particularly in areas with expanding populations. These dynamics support rental growth and sustained investor interest.”
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