Grocery assets back on shopping list as investment hits £1.26bn

26th October 2023, London - BNP Paribas Real Estate analysis of initial MSCI data has revealed that UK grocery based investment has hit £1.26bn in the year to end of Q3 2023, representing a 47% uptick on Q1-Q3 2022 (£858m).

Will Robertson, head of national investment at BNP Paribas Real Estate commented: “Grocery investment is on track for a strong close and what we anticipate could be a more active 2024. Investor demand has held up well for strong, well-located stores, with sale and leaseback deals dominating transactional activity. The resilience of grocery income, often benefitting from fixed or indexed rental uplifts, continues to be highly sought after – particularly where the underlying trading performance of the asset is strong.  

“Grocery is essential real estate and this dynamic together with very low capex requirements makes the asset class very attractive and particularly well suited to net lease buyers.  That said, supermarket investments have seen an outward shift in pricing over the last 18 months, and that has drawn new players seeking higher returns in to a sector that has traditionally been the domain of investors focused on core returns.

Charlie Tattersall, capital markets research at BNP Paribas Real Estate added: “While the real estate investment market continues to adjust to higher interest rates while negotiating significant macroeconomic challenges, the investor demand for food stores we have seen this year highlights enduring appetite from a wide range of capital sources. 

“It is important to note that this year’s figures have been distorted the large Sainsbury’s and Morrisons portfolio deals which took place in Q1 this year. That said, with the economic outlook for 2024 uncertain, investor focus on core assets with stable income streams secured against strong covenants is likely to benefit the UK’s supermarket sector going forward.”

Notable deals in Q3 2023 include DTZIM buying Sainsbury’s N1 from Lothbury for £56.3m at a yield of 4.4%; LCN Capital’s acquisition of a Tesco Extra in Cardiff from M&G for £62.9m – a yield of 6.8%; and Realty Income Corporation’s acquisition of a c£650m portfolio from ASDA.

On the market in Q4 2023 is Sainsbury’s in London’s North Cheam (circa £80m), and Morrisons in Leeds’ Hunslet (circa £26.7m).

Grocery assets back on shopping list as investment hits £1.26bn