Tesco delivery van

Source: Tesco

Supermarket Income REIT sees omnichannel supermarkets as the future of grocery in the UK

Supermarkets in town centres are more at risk of closure than edge-of-town sites as retailers refresh their estates, according to investment advisors.

The poorer suitability of town centre sites to serving online orders could put them in the firing line amid store opening activity elsewhere, according to Atrato Capital, the investment adviser to real estate investment trust Supermarket Income REIT.

Supermarket Income REIT’s investment strategy focuses on stores that are ‘future-proof’ thanks to their omnichannel capabilities. It sees store-picking as the future of online grocery, arguing it has proved a more profitable model than fulfilment from warehouses during the pandemic.

It presents a “threat to some sites, where over time trading is going to transfer from the physical-only stores to the ones that do online,” said Atrato Capital principal Ben Green.

“Large town-centre supermarkets are not ideal because it’s very hard to do online from them and obviously it’s harder and harder for people to drive their cars to them,” he said.

“If you take a typical regional town, with a ring road and arterial roads running in and out, the ones that work are on an arterial road, so you’ve got easy access to deliver to a large population both inside and outside the town.”

Property consultancy Colliers’ recently published UK Grocery Real Estate Review 2022 noted an increase in supermarket opening activity among the big four following a period of inactivity.

Property experts expect closures of legacy or underperforming sites to also increase as estate renewal gathers pace.

Sainsbury’s opened three supermarkets last year but also closed a number, including in Andover, Portsmouth and Gloucester city centre.

Green said: “We know there are some stores on long leases that will probably close when they get to the end of the lease.” He said Atrato’s investment strategy was “buying the right ones and avoiding those”.

Green spoke as Supermarket Income REIT announced its half-year results to 31 December 2021.

The direct portfolio was independently valued at £1,413.5m, increasing by £265.1m for the period following valuation growth of £21.7m and new acquisitions of £243.4m, excluding acquisition costs.

“I am very pleased to be reporting another strong set of results for the group which reflect significant growth in the period,” said Supermarket Income REIT chairman Nick Hewson.

“We have continued to diversify our portfolio by sourcing and acquiring high-quality omnichannel supermarket properties that represent the future model of grocery in the UK.”