In a striking demonstration of the evolving retail property market, Hammerson, the prominent UK-based real estate investment trust, has announced a significant acquisition. The company has repurchased a 50% stake in the Westquay shopping centre in Southampton for £135 million, a deal that speaks volumes about the changing dynamics of retail property valuations.
What makes this transaction particularly noteworthy is the price tag. Hammerson originally sold this same stake to GIC, the Singaporean sovereign wealth fund, for a whopping £299 million back in 2007. The fact that Hammerson has managed to buy it back for less than half the original sale price is a stark illustration of how dramatically the retail property landscape has shifted over the past decade and a half.
The Declining Fortunes of Retail Real Estate
This deal is not an isolated incident but rather a reflection of a broader trend in the retail property sector. The rapid decline in shopping centre valuations has been a persistent theme in recent years, driven by changing consumer habits, the rise of e-commerce, and more recently, the impact of the global pandemic.
A parallel can be drawn with another recent transaction involving GIC. This summer, Land Securities acquired a 17.5% stake in the Bluewater shopping centre in Kent at a valuation that was barely a third of what the property was worth in 2015. These deals underscore the challenges faced by traditional retail properties and the need for landlords to adapt to a new reality.
Westquay: A Crown Jewel Reclaimed
Despite the broader market challenges, Westquay remains a significant asset. Located in Southampton city centre, it stands as one of the country’s largest shopping centres, boasting 110 tenants across a million square feet of space. These tenants, including major brands like Apple, Marks & Spencer, and Zara, collectively contribute £27.2 million in annual rent.
Hammerson estimates that Westquay attracts nearly 19 million visitors each year, a testament to its enduring appeal. The centre has also evolved beyond pure retail, incorporating leisure facilities such as a bowling alley, cinema, and innovative entertainment options like axe-throwing bars and escape rooms. This diversification aligns well with Hammerson’s strategic vision for the future of retail spaces.
A Strategic Move for Hammerson
The reacquisition of Westquay is not a standalone decision but part of a broader strategy being implemented by Hammerson’s CEO, Rita-Rose Gagné. Since taking the helm in 2020, Gagné has been working to streamline Hammerson’s portfolio, moving away from complex joint ventures and divesting “non-core” shopping centres.
Gagné’s vision focuses on large city-centre arcades that offer more than just shopping. The aim is to create diverse spaces that combine retail with dining, entertainment, and leisure activities – a model that Westquay already embodies to a significant extent. This approach is seen as crucial for remaining relevant in an era dominated by online shopping.
The funding for this acquisition comes from Hammerson’s recent sale of outlet shopping centres, including the renowned Bicester Village, to LVMH and its billionaire founder Bernard Arnault. This £600 million deal, completed in July, has provided Hammerson with the capital to make strategic investments like the Westquay purchase.
Signs of Stabilization and Future Outlook
While the retail property sector has faced significant headwinds, there are tentative signs of stabilization. Hammerson reports that for the first time since 2018, it is experiencing “positive reversion” – meaning that current market rents are potentially higher than the rents being paid under existing leases. This could signal a bottoming out of the market and potential for future growth.
However, it’s important to note that rents are still substantially lower than their peak in 2017, with Hammerson estimating a decline of about a third. The collapse of major tenants like BHS and Topshop has contributed to this downward pressure on rents.
The market’s reaction to the Westquay deal has been cautiously positive, with Hammerson’s shares rising 0.8% following the announcement. This suggests that investors see value in the company’s strategic direction and its focus on prime, diversified retail assets.
Conclusion: Adapting to a New Retail Reality
The reacquisition of Westquay by Hammerson at half its 2007 price is more than just a good deal for the company. It’s a reflection of the profound changes that have reshaped the retail property landscape over the past decade. As consumer behaviors continue to evolve, successful retail landlords will need to reimagine their properties as multi-faceted destinations that offer experiences beyond traditional shopping.
For Hammerson, the Westquay deal represents a recommitment to this vision of retail’s future. By regaining full control of one of its prime assets at a favorable price, the company has positioned itself to drive forward its strategy of creating diverse, experience-led retail environments. As the retail sector continues to navigate challenging waters, moves like this may well determine which landlords sink and which swim in the years to come.
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