UK supermarket property deals hit record 1.8 bln stg in 2013

LONDON, March 5 (Reuters) - Supermarket property deals inBritain hit a record 1.8 billion pounds ($3 billion) in 2013 asinvestor competition drove up prices, reflecting the strongappetite grocers such as Wm Morrison could tap shouldthey decide to offload real estate. A report by Investment Property Databank and propertyconsultant, Colliers International on Wednesday showed dealvolumes surged 50 percent in 2013 from the previous year on a5.8 percent increase in values, the strongest annual valuegrowth since 2010. Morrison has come under pressure from shareholder ElliottAdvisors to spin-off its real estate into a separate company, amove which the U.S. hedge fund said would push up thesupermarket's share price. The company said in September it was reviewing its 9 billionpound property portfolio, which is currently 90 percentfreehold. While it stressed the majority of its core estatewould remain overwhelmingly freehold, it said the review couldlead to the release of surplus capital to shareholders. "They would be talking to a very willing market," said JamesWatson, head of UK retail investment at Colliers International. Properties occupied by supermarkets are highly sought afterby investors such as insurers Prudential and Legal &General as such properties tend to have leases that canbe twice as long as those held by standard retailers,guaranteeing steady rental income. There is also the perceptionthat grocers are better capitalised and less risky than otherretailers. "They're more a bond investment rather than a real estateinvestment," said Ben Sanderson, director of international anddebt investment at fund manager Hermes Real Estate, which sold aSainsbury store in Essex, east England, to Prudential's M&G RealEstate unit last year. Last year, supermarkets delivered a total return - includesrental income and rises in property values - of 11 percent yearon year, ahead of retail at 9.6 percent and all property at 10.5percent. The average net initial yield across the transactionswas 4.75 percent. The report showed property companies were the biggestsellers, selling 42 percent of the 59 deals last year. Retailersaccounted for 29 percent, followed by institutions at 24percent. Analysts said competition for such properties was alsoexacerbated by a shortage of supply, after grocers such as Tescoand Sainsbury's announced the end of the space race and a moveto smaller stores, resulting in a fall in sale-and-leasebackactivity.