Banks to drive shopping centre deals this year – Colliers International

Shopping centre transactions this year are set to be driven by banks, says Colliers International, as they seek to unwind their “bad loan” books. Colliers notes that receivership sales accounted for just 6% of such deals in 2010, suggesting that banks are only just beginning to force sales of distressed assets. Last year the overall value of completed (and unconditionally exchanged) shopping centre deals reached £3.51bn, up 72% from 2009, and moving closer to the 10-year average of £4.2bn. After a quiet third quarter, activity was brisk in the final quarter of 2010, with 40% of the year’s transactions being concluded, the firm notes.

The best shopping centre transactions are again likely to be cash transactions this year, says Colliers International. There was some new lending in 2010, but even traditional debt-funded purchasers were using equity and leveraging post exchange to fund their deals. Colliers says the availability of debt tightened towards the end of last year, so cash deals look likely again in 2011.

Colliers calculates that rental growth for shopping centres remained negative in 2010 at –3.4%, and the firm does not expect it to turn positive until 2012. It also says total returns on shopping centres last year were 13.5%, compared with All Property total returns of 14.7%. Shopping centre returns are forecast to slump to 7.6% this year, with pricing expected to stay relatively flat year-on-year. Colliers does expect prime yields to see some downward pressure, moving nearer to 5%, while secondary yields will remain around 7.5%-8.0%, it forecasts.