The growth of shopping online was a key factor in the slump of investment in European retail real estate during the first nine months of 2017, according to new research published by Real Capital Analytics (RCA).
Online retail, RCA said, has reduced the appeal of shopping centres that are not prime destinations. This is a turnaround for a segment that often relies on investment in dominant big-ticket assets located in secondary locations.
Investors acquired €34.7 bn of retail properties in the first nine months of 2017, a 15% drop from the same period a year ago, RCA data shows. Retail property transactions in the same period were 20% below the sector's five-year average, while July-September was the sector's weakest quarter for deals since the second quarter of 2013.
Regional centres
Tom Leahy, RCA's senior director of EMEA Analytics, said: 'Online commerce is polarising investment in Europe’s retail property sector and this is particularly pronounced for shopping centres. Large, dominant centres in strong catchments continue to attract buyers, whereas there's less appetite for centres in regional locations. It’s a pattern that is playing out to dramatic effect in the US; in Europe, the trend is most pronounced in the UK, where online retailing has one of the highest levels of penetration.'
RCA pricing indicators, which are calculated from repeat-sales data, show that average transaction prices for UK shopping centres are currently about 40% below the peak level reached in 2006-2007, mirroring the pattern in the U.S. market. In Continental Europe, however, the weakness in pricing is less pronounced over the same period: prices that are down about 15%.
Shopping centre sales accounted for about 40% of all European retail property transactions, RCA data for the first nine months of the year show. This year's largest shopping centre deals include the €530 mln purchase of Xanadú Madrid by Intu properties and TH Real Estate, while the latter also acquired Kauppakeskus Kamppi in Helsinki for €500 mln.
