UK Property Centres - comment

The UK REIT, Supermarket Income REIT, has just purchased a Tesco store comprising of a supermarket, forecourt and online hub for Tesco which operates nine home delivery vans from British Steel Pension Fund.  The purchase prices was for £38.3m, excluding acquisition cost, reflecting a net initial yield of 6%.  The site has an unexpired lease term of 12 years, with annual upward only RPI-linked rent reviews (4% cap and 0% floor).  

We acknowledge it is not directly comparable to shopping centres, but we note that the yield is 70bps wider than a comparable transaction in September 2022 (Tesco stores, unexpired lease term of 12 years, with annual upward RPII linked rent reviews (5% cap and 0% floor) and 140bps wider than another similar transaction in September 2021.  

Although UK shopping centres are experiencing improving rent levels and collections are returning to pre-Covid norms, the underlying yield widening is negating operational improvement.