European retail investment increases 31 percent on Q2 last year
The amount invested in retail real estate in Europe in Q2 topped €16 billion, maintaining the more than 30 percent year-on-year growth rate for the sector. The biggest increases in investment activity were in Germany and Norway with a number of large transactions driving this growth.
Over the last three quarters, investment in retail property has been around the €16 billion mark, this compares to a turnover of around €12 billion per quarter for the majority of 2014. The rate of growth in retail investment activity has been over 30 percent per annum for more than two years, bringing the 12 month total back close to its pre-crisis peak of €63 billion in the four quarters to Q1 2007.
The German market has been particularly strong over the last few years and retail investment turnover has exceeded €2 billion in eight of the last nine quarters. €3.1 billion of direct investment was recorded in Q2 2015. Investment in Germany was spread across a number of large transactions, including seven for more than €100 million. In addition, the Hudson Bay Company acquired department store group Kaufhof with assets totalling more than €2 billion.
Norway saw a sharp increase in activity on the back of Citycon’s acquisition of the Sketor portfolio with a gross asset value of €1.4 billion. A further €1.3 billion of retail transactions took place in H1 and as a result retail represented 45 percent of all Norwegian CRE investment for the first half of the year.
One of the more marked trends in the retail sector has been the greater level of investment activity from European REITs and listed property companies, both within their home markets and cross-border. They accounted for 27 percent of the total investment volume in H1, up from just 17 percent for the whole of 2014. As well as being more active buyers, European REITs are also becoming more active sellers of retail property in Europe. The last 18 months has seen them acquiring a total of €16.9 billion of retail assets and disposing of €16.4 billion. In both cases this is more than twice the level than in the previous 18 months.
John Welham, Head of European Retail Investment, EMEA Capital Markets at CBRE, commented: “Investment into retail has been very strong throughout the first half of the year, with investors continuing their high activity levels from 2014. We are currently seeing a more balanced demand, for core and secondary assets, with yields for both continuing to move in. However, whilst prime and secondary yields have both come in, the gap between them remains significant - secondary has not recovered to the same extent that prime has.
“The portfolio market has been active throughout the first half of the year, particularly those with a mix of assets, providing good yield values when compared with interest rates. We expect the coming months to prove very strong with Q4 investment levels potentially rising above the previous peak of Q4 2014. Investors will also be turning their attention to markets with strong rental growth as markets such as London continue to rise in popularity.”
Valentin Gavrilov, Director of Research, СBRE in Russia, said: “from January to August 2015 investment into Russian retail properties amounted to $657 million, or 33 percent of the total. This is 3.4 times more compared to the volumes, invested in the same period of 2014. However, these figures should not be perceived as an indicator of growth of investment attractiveness of the retail segment. Firstly, the large share of investment was delivered by just two transactions: with the Gallery “Modny Sezon” and shopping and entertainment complex “Mosaic”. Secondly, consumer demand remains fairly weak: decline in retail sales in 2015 might exceed 8 percent.”
He added, “Nonetheless, significant decline in asset prices, which has occurred since the beginning of 2014, makes investments in retail properties very attractive for the investors, pursuing relatively risky strategies. It is also worth mentioning that the majority of retail properties, delivered before 2014, benefit from quite a low vacancy rate. We expect that investment activity in this segment will grow in line with appearance of signs of stabilization in real wages and recovery of consumer demand.”