Why Octopus financed a regional UK shopping centre

The borrower plans to launch a repositioning strategy with the commercial bridging loan. 

Octopus Real Estate, the UK specialist lender and investor, has completed a commercial bridging loan in a segment of the commercial property sector that has experienced significant challenges in recent years – the regional UK shopping centre market.

The London-based firm provided the £6 million (€7 million) loan against a 34-unit town centre shopping centre in the west of England, in the belief that there is potential value-growth ahead for the right retail schemes.

Emery Gate Shopping Centre is located on a pedestrianised high street in the centre of Chippenham, Wiltshire.

Octopus provided UK developer Acorn Property Group with the 24-month loan to enable the borrower to acquire the site and commence its asset management strategy, which involves extensive refurbishment works.

Acorn is seeking to improve the centre’s links to the park and River Avon that sit at the back of the site and are currently underutilised, as well as exploring opportunities to add a residential offering while maintaining the shopping centre.

Other areas of focus include bringing the upper floors of the former Woolworths shop back into use, which have remained empty since the chain’s demise, and bringing alternative uses to the centre by incorporating more leisure and food and beverage occupiers.

Ludo Mackenzie, head of commercial lending at Octopus Real Estate, said the asset was an “exciting opportunity” for active management and partial redevelopment. He added that, despite a “50 percent decline in values” in the shopping centre sector, Octopus believed there were now genuine value opportunities for the right centres.

Mackenzie said Chippenham, which is around one hour by train from London, had appealed because of fast-paced house price growth. “It was one of the highest growth locations in the UK last year, lots of people are moving there,” he said.

The Wiltshire town benefitted from the “race for space” among buyers, according to banking group Halifax, as home buyers focused less on major cities in preference for property in the suburbs and further afield. Chippenham prices rose from £322,859 in 2020 to £381,181 in 2021, an increase of 18.1 percent.

He added that Emery Gate’s tenants, which include health food shop Holland & Barrett, fashion chain Peacocks and sportswear chain Sports Direct, are paying rents that had been renegotiated during the covid pandemic. Supermarket chain Tesco occupies around 60 percent of the site.

Yields for UK town centre shopping centres were 10 percent in the first quarter of 2022 compared with 10.25 percent in the previous year, according to Savills.