More supermarkets were bought and sold in 2023 than ever before as debt-laden chains tried to raise cash by selling off stores to property investors.
According to latest data from Knight Frank, food stores worth a record £2.49 billion were bought and sold in the UK. This is three times as much as the previous year, when there were £770 million of supermarket deals, and is 71 per cent above the ten-year average of £1.4 billion.
Some of the biggest deals involved Asda and Morrisons — both of which are owned by private equity firms — selling and then leasing back some of their stores.
“The companies using [sale-and-leaseback agreements] have a very high cost of capital,” the boss of one property investment fund said, “so they might use the deals to pay down expensive debt or just use it as another avenue to raise finance.”
Asda, owned by TDR Capital, the private equity group, and the brothers Mohsin and Zuber Issa, sold — and then leased back — 25 supermarkets to Realty Income Corporation, an American property investor, for £650 million over the summer. Realty Income also bought a portfolio of supermarkets from Morrisons, owned by Clayton, Dubilier & Rice, another American private equity house, for £175 million.
In March 2023, Sainsbury’s paid £431 million to buy the freeholds of 21 of its stores.
Josh Roberts, a chartered surveyor in Knight Frank’s retail capital markets team, said, “While commercial property volumes look set to decline by around 50 per cent overall in 2023, retail property investment has been resilient, buoyed by a record year for food stores.
“This is driven by a flight to safety, with supermarkets offering some of the strongest covenants available on long, inflation-linked leases and a significant increase in sale-and-leaseback transactions.”
Knight Frank, the estate agency and property services group, expects investment volumes for food stores to “remain strong” in 2024, albeit below last year’s record levels.
Simon Hannah
