Retail in Europe - Demand focused on prime locations

In Spain, shopping centre completions remained very low compared to 2008. The next largest new project is the 90,000 m² „Espacio Cañaveral“ in Madrid, expected to open in 2014. In Italy, amongst the recent openings BNP Paribas Real Estate can mentions a new concept of shopping centre; a 34,000 m² mall is actually hosted within the Juventus football club’s new stadium.



Retail property retains its appeal for investors
Following a sharp increase in 2010, retail investment volume in the 5 major European countries carried on its progression but at a relatively slower pace with a 12% rise on the first three quarters of 2010. In the meantime, retail continued to gain market share compared to other products. Within the 5 countries analysed, retail currently represents 35% of total investment, well above the long term average.

In the UK, weakened GDP growth and falling consumer confidence following the austerity measures adopted are impacting on investment. Indeed, activity has been on a downward trend since Q1 2011, which was marked by the year’s two largest deals so far, „Trafford Park“ shopping centre in Manchester for € 1.8bn and a Tesco sale & leaseback portfolio worth € 780 million. Central London remains a bright spot for investors as it is still the most attractive European city for international retailers looking for expansion, a trend that underlines the good prospects for the London high-street segment. On the other hand, the rest of the UK recorded a slowdown in volumes invested in retail in 2011. As regards the breakdown by retail categories, shopping centres were the most requested followed by retail warehouses.

Within the core European markets, investors remained increasingly focused on Germany, the best performing economy in 2011. For the second consecutive quarter, Germany with € 2.5bn during Q3 invested in retail took the lead and outpaced the United Kingdom. Amongst the Big Six markets, in the first 3 quarters of 2011 retail investment in Munich, Frankfurt and Düsseldorf is already above the total volume recorded in 2010. This upward trend can be seen for different retail categories too, where shopping centres were dominant with a 43% market share for the whole Germany.

Retail has been particularly attractive to investors in France thanks to the resilience of household consumption. Following a very good result recorded last year, retail investment volume contracted in the first three quarters of 2011, but this downward trend is mainly due to the lack of large shopping centre transactions that dominated the market in 2010. On the other hand, investment in out-of-town retail held up well as did city-centre deals that are quite dynamic in 2011 so far, driven by portfolio transactions.

In Italy, retail assets are witnessing particularly strong interest from investors. For instance, Q3 2011 saw the highest investment volume recorded since early 2008. The strong demand was driven by a sale & leaseback of a Metro cash & carry portfolio as well as particularly strong interest for street retail. Contrary to last year, Milan attracted more investment than Rome in the first three quarters of 2011, thanks mainly to the € 472 million „Rinascente“ department store deal. In Spain, retail investment volume dropped by 27% in Q3 2011 on a rolling year basis. This negative trend can be explained by the weak economic activity and especially household consumption, as retail sales are expected to contract for a 4th consecutive year in 2011. Consequently, investors are only focusing on prime assets located in core areas.