SUPERMARKETS have featured in the headlines in recent months, both in the national press and in property journals, due to the widely reported interest in the proposed takeovers of the Safeway and Somerfield chains.

When William Morrisons announced proposals to take over Safeway, Tesco, Sainsbury's and Asda swiftly threw their hats into the ring and the UK supermarket sector is presently under scrutiny as the Competition Commission examines the proposals.

What has fuelled this unprecedented interest, and what does it mean for supermarket values?

In the past, supermarkets could grow by expanding on convenient edge-of-town sites, but tight planning controls have put a stop to that.

With the reluctance of households to increase expenditure on food, combined with pricing competition between the major operators, one of the most effective ways that supermarkets can grow is by buying up competitors and achieving cost savings through economies of scale and streamlined distribution.

While the dominance of a small number of major national operators continues to strengthen, to date it has generally come at a low rental cost, primarily because for many years there have been virtually no genuine open market lettings without premium payments from which to derive reliable and conclusive evidence.

The impact of restrictive planning policies has reduced the number of new store developments over the past decade and the majority of supermarkets remain within the control of the operators.

Even when lettings do occur, third-party surveyors seem reluctant to reflect the evidence created, often ignoring substantial premiums paid by the operators on top of high rental figures.

By way of example, the rental of £14 per sq ft paid by Sainsbury's in 1999 on acquiring a store on the edge of the small Dorset market town of Sherborne (in addition to a six-figure premium payment) failed to be reflected in subsequent rent reviews of supermarkets in larger towns in the south of England, where rental levels for better-quality stores were subsequently agreed or determined at rental levels in the region of £11-£12 per sq ft.

More recently, acting on behalf of the landlord of a good quality 15-year-old supermarket on the edge of a popular south coast town centre, I have received an independent expert determination at £14 per sq ft.

Although £1 per sq ft greater than the highest previous rent achieved for a south coast supermarket rent review, the determination is still well below the £18 per sq ft that Waitrose has agreed to pay for a new edge-of-town store being developed for it in Newbury that is due to open in 2004.

With the major supermarket operators continuing to report increased turnover and profitability, and with rents often well below the level operators can afford on the rare occasions that well let supermarket investments become available in the open market, there is no shortage of interest from investors.

Despite obvious strong demand from operators, in a sector where a lack of open market transactions continues to stifle rental growth, the retailers are continuing to "make hay while the sun shines".

Many landlords would like rental levels to reflect more closely what the operators could actually afford to pay in the open market, but for the time being must be satisfied that their investments on the whole remain secure.