European retail markets are evolving as investors look beyond traditional markets and assets for resilience, rental growth and upside potential in an increasingly competitive environment, according to JLL’s European Retail Investment Perspective.
Increased competition and pricing is leading investors to look at broader geographies, such as the Nordics and Southern Europe, and asset types, such as retail warehouses and factory outlets, for returns. Shopping centres continue to attract the highest investment volumes, but investors are also eyeing up prime high street locations across the region.
Traditional private equity players are now looking towards core plus assets, preferring scale and dominance. South African REITs, which emerged as a major buying force in 2016, are beginning to expand their appetite towards Southern European markets after dominating the Central and Eastern Europe and South Eastern Europe retail landscapes last year, when they made up over 50 percent of total investment, enticed by attractive yields and low interest rates relative to their domestic markets.
Jeremy Eddy, head of retail capital markets, EMEA, JLL, says: “Retail continues to offer investors a stable, resilient investment destination, and with strong competition across all markets, the key to success is ensuring the right space is in the right place. Resilient retail places prevail, and straying beyond prime into the best secondary assets with asset management potential will present the greatest opportunity for returns.”
The report also looks at the rise of e-commerce, which continues to play an important role in retail, but not to the detriment of physical space. JLL research has tracked more than 200 online retailers taking physical space in shopping centres, high street locations and department stores, demonstrating the continued importance and resilience of retail real estate in the right locations.
Eddy adds: “Consumer demand has changed the world over and store sizes and functions have developed as customer experience rises in importance. The US is experiencing and adjusting to this structural change right now with the well-publicised retail closures and bankruptcy. Europe – and the UK in particular – has been at the forefront of adapting to this and the region has become increasingly comfortable with navigating the changing market. Investors should embrace e-commerce and new technologies and understand how these are altering retailers’ requirements for physical space.”