Was 2021 a comeback year for retail investment?

COMMENT Will 2021 be remembered as the year the shopping centre investment market returned? Or a false dawn? At first glance the statistics certainly make for positive reading. Total investment volumes for the year are expected to exceed £1.3bn, more than three times the amount transacted during 2020 and marking a return to levels last seen in 2018. At the start of the year this was driven by a number of private buyers acquiring assets for £10m at “historically cheap” prices. As 2021 has unfolded, larger “marquee” deals have also taken place – namely, Touchwood in Solihull (£90m), Silverburn in Glasgow (£140m) and Centre Court in Wimbledon (£73m). This means that during 2021 there have been 18 deals above £20m, compared with only five in 2020. However, if we look at the data a bit more closely, the situation isn’t necessarily a cause to look back on 2021 too fondly. More than two-thirds of sales processes were driven by the lender, albeit fronted by the borrower, and the new purchase price was on average 55% lower than the previous transaction. Most notably, Hammerson’s recent sale of Silverburn was £160m less than it paid for the asset in 2009. Council cash Local authorities have remained active buyers in the shopping centre sector, with 10 transactions in total this year. These were all within their jurisdiction, as they continue to drive much-needed investment and regeneration into their respective town centres. Interestingly, the uptick in investment activity has happened in the absence of a meaningful senior debt market. A key to a continued recovery in 2022 and beyond will be the return of leverage for shopping centre acquisitions. But with the majority of existing retail loans in some form of distress, a willingness to lend on retail is unlikely to be a New Year’s resolution for many credit committees. Balance sheet troubles To regain confidence in the market, lenders will have to first address the current challenges on their balance sheets. It’s a process that we have looked at in more detail in partnership with CREFC Europe, creating a Guide to managing UK retail for lenders and their advisers. The paper seeks to recognise some of the operational and credit difficulties facing lenders, as well as the actual and potential options available for managing retail assets, in a distressed situation, to realise the best possible recovery of their retail loans. This year has proved that there are still pools of capital that do believe our retail places have a future, and that now might be the time to re-enter the marketplace. We expect that the return of modest and prudent leverage will further boost this demand, leading to a procyclical move in prices. A process of healing and further cleansing of lenders’ balance sheets can then continue. We will have to wait for 2022 to know whether this year has seen the re-emergence of the shopping centre market or another false dawn. However, Ellandi’s prediction for 2022 is that debt, in terms of workout and liquidity, will be the key to how fondly we look back in 12 months’ time. David Cohen is director of restructuring and investment at Ellandi David Cohen portrait © Ellandi Silverburn photo by Billy McCrorie / Silverburn Centre / CC BY-SA 2.0