What do AustralianSuper, Norges, British Land, ADIA, NPS, Goldman Sachs and Nuveen have in common? The answer at the moment is that they have all decided to test the market and attempt to sell dominant shopping centres, or interests in them.

There are sales processes at various stages for prime malls in Dublin, Paris, Madrid, Berlin and various UK cities. Those on the block include four centres of a size that rarely trade, €500-€600 mln-plus centres: namely Meadowhall and Blanchardstown where marketing went live in Q4 2023; and joint venture stakes in Liverpool One and Centre:MK which have been for sale a little longer. There are also malls dotted across Europe priced at €200 mln- €300 mln; not everything for sale is being openly marketed.

‘I’d say every country has a significant shopping centre sale in it,’ says CBRE’s Chris Gardener, managing director and head of European retail capital markets. ‘A lot of retail has come to the market.’ Some of these shopping centres are coming back after attempts to sell them four years ago were stymied by Covid. But whether their owners are trying again, or for the first time, there are common reasons for pushing the button now.

Robust performance
One is that good centres are putting in strong operating performances. The idea that all retail would die to be replaced by online shopping has not turned out to be true. The best shopping centres were recovering by 2019 before they were knocked for six by Covid and it turns out the dominant ones came through the fire and now have 18 months of data to prove stability and growth in their income streams. ‘We’ve seen a recovery back to pre-pandemic levels and beyond. The sector is match fit; it has proved itself,’ Gardener explains.

A senior consultant to a shopping centre investor and operator backs this up. ‘Performance- wise, the good assets are performing excellently. They’re already back up to 2019 levels, at least on a nominal basis, and there’s really good tenant demand from the tenants that survived.’

Another factor for some sellers at least, is the realisation that maintaining good performance is a matter for expert operators. ‘I’d say there are people who have owned some of these shopping centres for a long time who have finally realised that they are not “collect-the-rent” assets, they are operational assets,’ believes the same source.

Whether a slow dawn or lightbulb moment, it is enlightenment at a time when the pool of operational expertise has shrunk alongside the value of the shopping centre sector. Thus, another reason for some sovereign wealth funds and pension funds to sell now is that they don’t have anyone to lead them, and they don’t have the in-house skills themselves.

Gardener considers that there is a third change in play encouraging attempts to sell: ‘There’s a view that the pricing of these assets is bottoming out,’ he maintains. ‘Sentiment towards retail hasn’t been this good since before the pandemic. We have seen investors that had some nervousness about the sector return to it, because of operationally performing assets and attractive pricing.'

This is good news for investors whose hold periods are long past. The question is: will these changes be enough to see sales happen? At a time of very few large transactions anywhere across real estate sectors and with debt so much more expensive, even with revised pricing who might buy these shopping centres?

Potential buyers
There are certainly potential buyers for dominant shopping centres but the pool is shallow. Specialist REITs once made up a significant part of this market. Of those which survived, Hammerson is a net seller and until very recently, so was Unibail-Rodamco-Westfield – although it is one of the handful approached over the sale of Meadowhall.

Some sources say this group of investors will be among the first back and Klépierre is tipped to be buying O’Parinor in Paris in partnership with third-party capital for about €200 mln from NPS and Hammerson.

French listed retail specialist Frey is expanding, in October exercising its option to buy Polygone Riviera in the south of France from URW. It has also bought in Portugal and Poland and could be interested in shopping centres there which Cromwell wants to sell.

Of the generalist REITs which once considered dominant shopping centres a key ingredient of their portfolio mix, only Landsec in the UK is still investing. Having bought out Wells Fargo in Cardiff to corral 100% of the capital city’s dominant St David’s shopping centre, Landsec is the frontrunner to buy Abu Dhabi Investment Authority’s majority stake in Liverpool One. But with its ownership in Bluewater as well, and assuming the company does buy out ADIA, could it then sell the idea of expanding further into the sector to its shareholders?

The number of private property companies with deep shopping centre asset management expertise is also small. One is Ikea’s subsidiary Ingka Group which bought Paris mixed-used asset Italie Deux from Hammerson and AXA earlier this year and has just acquired Brighton’s dominant shopping centre, Churchill Place, from abrdn.

Almost totally absent is interest from core capital. Insurance group Generali is one exception and ECE still has some capital from a core shopping centre fund to invest. They invested together in the largest prime shopping centre deal since Covid, Munich’s Pep centre, at the start of 2023.

Capital and expertise
Gardener thinks it will be ‘an operator and value-add fund-led recovery’. He says: ‘It always starts with the value-add funds who have more appetite for risk, but no-one’s going into shopping centres without having the expertise alongside them.’

Lone Star is said to be another of the parties which British Land and Norges approached about Meadowhall. Eurofund has bought two shopping centres this year in partnership with private equity funds: regional mall RheinRuhr-Zentrum in Mulheim near Essen with Signal Capital Partners, which invested via its circa €1 bn opportunity fund; and Silverburn in Glasgow with Henderson Park which invested via its opportunity fund. Now, Eurofund and Henderson Park are said to be close to acquiring Islazul in Madrid.

Of course, some private equity firms lost a lot of money buying shopping centres in the period after the global financial crisis, which means however good a proposition might be now, they can’t invest. For those that can, there is concentration risk to avoid which places limits on how much of one fund can go into malls.

So, it is not a liquid market in terms of number of players and quantity of capital, but where shopping centres are priced to sell because investors really want to exit, there should be buyers. Regarding where the pricing should be, one source says: ‘What people who’ve owned these assets a long time realise is: the net operating income is not your free cashflow. You have to reinvest somewhere between 10% and 15% of your NOI annually to keep these assets fresh and up to date.’

Furthermore, opportunistic buyers need debt. ‘Success and liquidity in the large shopping centre market will be led by supporting credit structures,’ says Gardener. ‘There needs to be a return to lending to these assets.’

So if debt is stapled to the property – especially at historically cheaper cost – it’s usually extremely helpful. This was the case with Pep in Munich. Some of the joint venture structures have debt in place which will travel with any partial stake sale.

Every transaction is different but the backdrop points to net initial yields in low double digits for dominant shopping centres and high single digits for the very best. The deal put together for O’Parinor is said to be a little under 10%; Ikea’s £145 mln purchase of Churchill Square in Brighton is circa 11% NIY. For the very best, where yields were once 4%-5%, pricing expectations are justifiably higher. And that means the likelihood of them trading is just that bit more difficult.