According to the latest study of the UK supermarkets investment report by MSCI and Colliers International, a space that was once almost exclusively the preserve of institutional buying is now attracting a new generation of investors in the form of private equity and overseas buyers. 

James Watson, Head of Retail Capital Markets at Colliers International, comments: “This restructuring of the investor base is mirrored by the changes in the supermarket sector which has seen a move away from the giant stores of the noughties ‘race for space’ expansion programmes and towards generally smaller, grocery-focused stores, higher-end offers and discount operators. 

“There has been recent encouragement for the sector in some improved trading figures and there are clear indications that the operators are beginning to find a way forward.”

 Against this backdrop of transition, recent property returns are historically lacklustre but the new raft of investors has kept the volume of transactional activity above the £1bn mark. 

Watson comments: “A two-tiered market has now emerged between prime and secondary stores. 

“Whilst there is still demonstrable institutional appetite for prime assets, there are is also demand for the more secondary product from private investors who are reassured by the covenant strength of the occupiers and the long-dated, RPI-linked income streams and seemingly unconcerned by the Brexit fears that have put other buying into suspended animation.”

The research notes that the RPI-linked leases which predominate in the sector are still a considerable attraction to investors – especially with bond returns continuing languish at all-time lows.

MSCI Vice President, Colm Lauder, comments: “With continuing volatility in the equities markets and lacklustre bond yields, there is still a compelling case for investing in property. In light of these factors, the report shows investors are still attracted by the covenant strength of operators, the advantageous prevalent long-term, RPI-linked lease patterns, and as a result supermarkets are likely to remain in demand despite the challenges that the sector faces”.

The research monitors the performance of 273 supermarket properties with a combined value of £6.8bn.