UK grocery property performing well despite wider retail uncertainty

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grocery property
// Investor interest in grocery properties still strong despite wider industry challenges
// £1.06 billion of supermarket assets were traded in 2018

Investor demand for UK grocery property has remained strong in the face of wider retail sector uncertainty, the proposed Sainsbury’s-Asda merger and Amazon’s anticipated entry into the sector.

According to Colliers International’s latest UK Grocery Real Estate Review, £1.06 billion of supermarket assets were traded in 2018, with most demand coming from UK institutions.

“In stark contrast to mainstream retail, the grocery sector is performing well with the main operators reporting solid trading figures,” Colliers International head of UK retail capital markets James Watson said.

“Consequently, 2018 was largely business as usual for property investment in the sector with volumes only marginally down and returns in line with the 10-year average.”

Amazon is believed to be planning to open 200 UK convenience stores and is about to start testing the market with a series of small, in-town stores with the first units in central London rumoured to be under contract.

“Even if Amazon do enter the market it looks like their offer will be predicated on physical stores rather than a predominantly online offer,” Watson said.

“As such, this may – in time – create a further pipeline of investable assets.”

Meanwhile, Kantar Worldpanel’s Fraser McKevitt wrote in the report: “Groceries are to some degree insulated from the worst challenges from online competitors. There is something inherently physical about the food, drink and toiletries people buy.

“In the last quarter of 2018, 20 per cent of households bought at least some of their groceries online – this was barely changed from the year before. Where growth did come, it was from the already converted shoppers spending more.

“When shoppers do choose to buy online, their decision is highly influenced by where they do their bricks and mortar shopping.”

The supermarket sector is also awaiting the CMA’s decision on the proposed Sainsbury’s-Asda merger.

Whatever the result, the main beneficiaries of the outcome may be Amazon.

Watson said: “If the CMA blocks the ‘SASDA’ takeover then it will leave the two businesses worse equipped to deal with an increasingly competitive market.

“The CMA needs to look one step ahead and consider what this means should Amazon make a meaningful incursion in to the grocery market.”

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