Investment on supermarkets should reach “historical record” in 2020

Investment on supermarkets should reach “historical record” in 2020

Taking only into account the 6 supermarket operations already carried out in Spain (around 567 million euro), this year already shows the highest investment volume of the last 20 years. The highlight goes to the sale of 27 supermarkets by Mercadona to LCN Capital Partners for 180 million euro; the purchase of GM’s 37 cash & carry portfolio by Sagax for 150 million euro and the sale of 6 supermarkets by Eroski from Invesco to Pradera for 119.5 million euro.

When compared to the investment on supermarkets last year (around 183 million euro) the total amount expected to be invested this year is three times higher, revealed the consultant’s latest report "Spotlight Alimentación España Noviembre 2020" (Spotlight Food Spain November 2020).

Looking back at investment since the year 2000, the trend is not clear – there was a 369 million investment peak in 2008 and, then ups and downs until 2013 when there were no operations. What became evident is that, since 2015, investment in supermarkets was always above 180 million euro per year, which shows the interest in this segment has been consolidating over the last 5 years.

The reasons for the consolidation of this type of retail may be the same that led the players to bet on the segment in 2020. As resumed by the consultant, this type of assets became «a very interesting option».

First, since the assets offer first need products, demand is «continuous» making the segment resilient against the effects of the crisis. The pandemic proved that since these establishments were amongst the few which were able to remain open during the country’s emergency state. Second, «it is a liquid and defensive product, which protects the investor’s position in the market and which can be traded without significant loss in terms of value». Third, «these assets have long-term contracts and good covenants which guarantee the robustness and viability of the operation». And, lastly, «supermarkets provide safe cash-flows which secure the investors’ portfolios and diversify them», it can be read in the report.

The yields provided by this market are also attractive, since «an urban supermarket with good contractual terms and a prestigious operator, could reach yields that vary between 5% and 6%. But in Madrid and Barcelona they could drop up to 50 basis points», revealed the consultant, further alerting that «there is a certain yield compression in prime food portfolios in Madrid and Barcelona, and although there are yet no references, if there is an intention to sell, it is likely we will witness price adjustments».

Currently, the «food market remains active and spiking the interest of institutional and private funds», assumed the consultant. Despite the «wide range of investors» betting on the segment, Savills AN noted that institutional investors – which possess a higher capacity to invest – are more focused on supermarket portfolios which will allow them to reach the minimum volume of investment demanded by funds. Private investors prefer to acquire individual assets.

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