Supermarket properties to stay in the basket for liability-matching

Aviva Investors has said it expects demand for supermarket properties to remain strong from liability-matching investors looking for secure long-term income streams, but it expects others to take profits from these assets.

Aviva global research manager, real estate, Chris Urwin, commented: “With the economic backdrop improving and the attractiveness of defensive assets fading, this might be an appropriate time for generic real-estate investors to consider their current exposure to supermarkets. Significant yield compression over recent years may mean that current pricing offers a good profit-taking opportunity.”

But Urwin said that pension funds would continue to hold supermarkets, attracted by their secure long-term income with inflation protection, which is attractively priced compared to fixed income assets. In 2013, there were £1.8 billion of transactions in supermarket properties.

Urwin drew attention to the uncertain outlook for supermarkets in the face of online and convenience store shopping. “Several major supermarkets have seen their credit ratings downgraded in recent years, and further downgrades are possible; therefore, investors should carefully monitor supermarket covenants. Investors should also pay close attention to the locations and potential alternative uses of supermarket sites, as shopping patterns continue to shift over the longer term.”