McKinsey & Company have recently published a sector by sector report highlighting the impact of the Covid-19 pandemic. One of their exhibits, copied below, reiterates the highly negative disruption caused to the retail sector and, in particular, the availability of finance for retail property owners. However, a quick glimpse over the infographic does not tell the whole story; it seems that Covid-19 has contributed to the increasing popularity of the supermarket with investors.
The impact of on-line sales on the retail sector has of course been exacerbated by the Covid-19 pandemic with the result that many lenders are now reluctant to finance retail assets. But there are nevertheless good opportunities to finance retail for the right assets that are in the right locations. We are continuing to observe the appeal of supermarket assets to investors and lenders alike as evidenced by the recent acquisition of nine supermarkets by Supermarket Income REIT plc with finance being provided by HSBC, Bayerishe Landesbank and Wells Fargo.
Our experience shows that lenders are also willing to finance shopping centres and retail parks that include supermarkets as anchor tenants. This is no surprise when research from Savills shows that, whilst shopping centre yields have widened by 40 basis points since 2018, those for prime retail parks (that include supermarkets) have only widened by 10 basis points.
Real Capital Analytics also flagged recently that supermarkets are still popular with equity investors; noting that the sales of European grocery stores exceeded the rest of the retail sector combined in Q2 this year.
The lesson here, as most recently reported by Real Estate Capital, is not to write off financing retail assets, particularly where supermarkets are involved.