Retail sees increased focus from investors

Retail investment in Italy, Germany, Poland and Netherlands has increased in 2011 when compared to 2010, as investors target prime stock.

Savills finds that in Italy over 58% of investment deals have taken place in the retail arena so far this year, with retail in Germany at a 52% share, Poland at 49% and Netherlands at 35%.  These figures represent a yoy rise of 70% in Italy and 50% in Germany. Despite this, the research indicates an overall decline in average retail investment from 34% of total volumes to 25% in Q311. However, Savills suggests this is attributable to a lack of prime opportunities rather than a loss of interest from investors as illustrated by average yield compression of -22 bps for shopping centres and -2 bps for retail parks across the survey this year.

Giles Wilcox, Head of European Cross Border Investment, says: “There has been increasingly strong investor appetite for retail stock across Europe, especially in large core liquid markets.  However, the year has been a tale of two halves with more opportunistic demand in the first half and a very much more cautious approach in the second as Eurozone crisis continues to influence decision makers and finance providers.”

Indeed, Savills report notes development activity remains constrained by tight financing conditions and economic uncertainty. Between 2011 and 2013 the annual supply of shopping centres is expected to drop by 12.5% on average, compared to growth of 22.4% pa since 2004. This correlates with cautious approaches by retailers who are targeting prime locations with high footfall. Those areas which are expected to see growth are Germany which has some undersupplied areas and Poland where the market will grow further as new retail formats emerge and larger developments are constructed in the major cities.

In terms of rents, Istanbul, London and Stockholm have seen shopping centre rents increase by 13%, 10% and 7% yoy respectively. Average annual rental growth is close to 0.7% for prime shopping centres against -1.5% a year ago.

Lydia Brissy, Director of Savills Research, adds: “Retailers will continue to primarily target prime properties where levels of footfall are high. The continually declining development pipeline should keep prime rental values steady and fuel competition amongst investors for prime assets, leading to further compression of yields.”