Investors bought a record 1.8 billion pounds ($3 billion) of property leased to U.K. supermarket operators such as Tesco Plc (TSCO) and J Sainsbury Plc last year, 50 percent more than in 2012, as they sought real estate with longer leases.
The total return, comprised of changes in real estate values and rental income, was 11 percent last year, researcher Investment Property Databank Ltd. and broker Colliers International said in a report today. That beat a 6.7 percent total return from shopping malls and a 9.6 percent return from outlets such as high-street shops, department stores and restaurants. Supermarket leases are almost twice as long as those for standard stores, the report said.
Real estate held by some of the U.K.’s biggest supermarket chains including Wm Morrison Supermarkets Plc (MRW) is attracting private-equity firms and hedge funds after a 35 percent gain over five years made the stores worth more than the companies that run them. The value of property leased to the grocers rose by 5.8 percent last year, the most since 2010, according to today’s report.
Demand from investors was strongest for larger supermarkets in towns and cities as out-of-town stores underperformed, IPD and Colliers said.
“The general retreat from larger ‘Death Star’ stores continued with a move away from non-food sales and an increased focus on the core business of groceries,” according to the report.
Not all supermarket chains are cutting the size of their stores, according to the report. Waitrose Ltd., for example, increased its standard space requirement in “stronger towns” to 50,000 square feet (4,600 square meters) from 35,000 square feet, IPD and Colliers said.
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