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What is happening to retail property valuations?

We read with interest news reports that Hammerson have sold the Silverburn shopping centre in Glasgow to a London based private equity firm for circa £140 million.

Recognised as one of the prime retail developments in Scotland the 67 acre site was bought by Hammerson in 2009 in a 50:50 joint venture with the Canada Pension Plan Investment Board, reportedly paying £300 million.

Why has this caught our eye? Well, we have talked at length about our concerns at the level of tenant arrears (currently in excess of £6 billion) that have arisen during the pandemic, the fact that there is a moratorium on any recovery action until March 2022 and the impact that might have on valuations in the sector. So our initial thought was that this was possibly the start of the realignment of valuations, but then reading reports that Silverburn is currently 78% occupied with rent collection running at 92% that would not appear to be the case here.

We believe the only significant tenant loss has been Debenhams, which closed about two years ago, and current occupancy rates would support that view. As outsiders looking in, we do not know whether this is Hammerson simply realigning their portfolio (this is not their only disposal recently) or some other reason.

We are certainly not questioning why Hammerson have taken this decision as we do not doubt their expertise in the market – we are simply concerned as to why a seemingly successful retail development would lose almost 50% of value in eleven years when it does not appear to have been hit by significant numbers of empty units and high rent arrears that have impacted so many developments across the UK.

Conversely, given the level of arrears in the sector, why would anyone want to invest in retail property at this time? Private equity firms have a reputation of spotting opportunities to extract value and presumably the buyers have identified some future potential with Silverburn.

Whatever the reason for this change of ownership, the price must be causing alarm bells to ring in the offices of retail property investors everywhere.

Alistair Dickson,
Head of SKSi Scotland.