Atrato Capital chief investment officer Steven Noble spoke to Stephen Gunnion from Proactive about latest inflation trends and their impact on the supermarket property market.
Noble noted that September's inflation rate stabilized at 6.7%, with higher petrol and transport prices offsetting lower food inflation. Notably, food inflation has shown a downward trend for six consecutive months, driven by lower inflation on staples like milk, eggs, cheese, and soft drinks. This is seen as positive news for consumers, and the trend is expected to continue into 2023.
The impact on tenants' sales and profitability in the supermarket property market has been positive, Noble said. Tesco, a major tenant, reported a 9% increase in like-for-like sales and a 17% increase in profits. Supermarkets have kept prices low and promotions high, effectively capturing consumers shifting from expensive dining out to more in-home consumption. Lower margins on value ranges and promotions are offset by increased overall sales across all price ranges, contributing to the profitability of these supermarket chains.
In the investment market for supermarket property, Noble said the outlook remains strong. Investment volumes have increased by 50% compared to the previous year. New entrants are attracted to core assets that offer stable income and growing reversion values. Investment yields have stabilized at around 5.5%, and this demand is expected to support a positive long-term yield outlook.
Noble highlighted omnichannel supermarkets, capable of meeting changing customer needs, underlining the importance of asset selection to align with the future model of grocery retail.
Overall, he said the supermarket property market continues to perform well, and the operational resilience of supermarket chains in the face of inflation contributes to the sector's attractiveness for investors. Atrato serves as the investment advisor for the Supermarket Income REIT PLC (LSE:SUPR, OTC:SUPIF).
