Retail property investment markets around EMEA have been getting busier this year, with €16.3bn traded in the opening 6 months, 31% more than the first half of 2012.
However according to Michael Rodda, head of EMEA Retail Investment at Cushman & Wakefield, “While the retail market is seeing more demand, finding the right quality and location of property is a major challenge for investors. As a result some are starting to look further afield, while others are contemplating taking on more risk, usually via development, or pushing up pricing to encourage vendors to come forward. “
Chart 1 – Retail Property Investment in EMEA
Source: Cushman & Wakefield, KTI, RCA, and Property Data
Investor demand is coming from a broad cross section of the market, with good domestic institutional, REIT and private individual interest but also more cross border buying, with some of the larger global funds increasingly looking at retail as they diversify from capital city office markets. According to Rodda,” We are anticipating an increased flow of cross border money into the retail sector and in particular, more interest from Asian funds following the successful purchase by Allianz of Silesia City Center in Katowice, Poland, for €412 mn on behalf of a consortium which included Asian partners.”
There has been increased interest in the unit shop market for stability and long term growth but also a stronger focus in the more traditional shopping centre market among both core and opportunistic players. Out of town markets meanwhile are still quieter in general but the best schemes are starting to pick up interest thanks to the current level of yields.
With a 32% market share, the UK remains Europe’s largest retail investment market and has seen volumes rise 14% since Q1 but 94% over the first six months compared to 2012. Significant transactions in the last quarter included CPPIB’s acquisition of a share in the Bull Ring, Birmingham.
Patterns of activity have been quite variable market by market however, as a function of the availability of the right stock for buyers, with almost as many markets seeing activity fall as rise year on year. Overall it has been the largest markets boosting the sector’s numbers, led by the UK and Germany but with France, Sweden, Norway and Denmark all seeing a good increase on H1 2012. More interestingly, some markets which had been overlooked of late have also rallied well, with interest up in the first of the year in Greece, Ireland, Italy and Portugal for example and more deals expected in the short term here and in Spain as attractive pricing draws in investors.
Commenting on these patterns, Rodda said; “The Nordics were strong again in H1 and we expect this to continue into the second half of the year but we are beginning to see increased activity outside such core markets. There have been some notable transactions in Central and Eastern Europe for example, such as Atrium’s acquisition of Galeria Dominikanska in Poland, and there is also now real momentum building up in Iberia, where we expect to see a surge in activity as rental re-pricing looks to have bottomed out and improving availability of finance appears to be on the horizon.”
Chart 2 – Top Retail Investment Targets
Source: Cushman & Wakefield, KTI, RCA, and Property Data
According to David Hutchings, Head of EMEA Research at Cushman & Wakefield, “Retail property has remained much in demand across Europe in the last few months, with buyers undeterred by the stresses and strains of the consumer market or the growing threat of the internet. They should however become more discerning due to these factors, focussing on key locations and dominant centres which can justifiably expect to see sustained shopper and retailer interest regardless of the growth of other channels of retailing.”
Looking at the outlook for the rest of 2013, Hutchings concluded “Supply levels will improve as pricing firms and alongside a slight further thawing in debt markets, investment into the retail sector is likely to increase, with our current forecast rising to €37bn, 8% up on 2012.“