EUROPE - Institutional investors focused more on prime retail assets in the UK and Germany during H1 this year, two new reports have found. 

According to Savills, commercial real estate transactions in Germany were dominated by prime retail acquisitions during the first half of 2011.

In its latest investment report, the real estate agency found that 51% of the €11.03bn deal flow took place in the retail sector during H1, while seven out of the 10 largest transactions involved retail assets.

Oliver Schinkewitz, managing director of investment at Savills Berlin, said: "The investment volume of €5.58bn transacted in Q2 marginally beat the positive result of the first three months of the year. Retail remains the dominant sector."

Retail transactions included the sale of shopping centres in Hamburg and Cologne, as well as the exchange of ownership of various Karstadt department store properties.

Meanwhile, the latest figures from DTZ show that approximately £2.9bn (€3.3bn) in transactions involving UK shopping centres took place during the first half of the year, although more than half of this figure can be attributed to the £1.6bn sale of the Trafford Centre in Manchester in Q1.

According to DTZ's Retail Investment Market Update, high street retail in the UK also saw £343m of transactions over the six-month period, with an additional £110m of deals under offer.

But DTZ said the lack of good-quality, well-let retail assets in the UK was increasing the gap between prime and secondary stock.

In the face of weakened occupational demand, retailer administrations and widespread downsizing, institutional investors have been focusing on prime, with appetite for riskier secondary assets remaining low.

DTZ said secondary assets with the potential for repositioning through active management and capital expenditure were attracting attention from opportunistic buyers, but pricing was proving to be an issue, with yields continuing to rise in this section of the market.

Martin Davis, head of UK markets research at DTZ, said: "The decline in consumer spending and disposable income is impacting the occupational market and is putting pressure on rents payable.

"Ailing retailers looking to downsize are likely to retain their prime locations because they will bring in more money - despite the higher rents.

"Retailers will be able to justify the rental costs because consumer spending in these prime locations is so resilient," he said. "As a result, the rental growth performance of secondary retail assets is deteriorating compared to prime."

Meanwhile, a report on Shopping Centre Stock in Europe published by CB Richard Ellis has shown that a shortage of new shopping centres in Europe restricted the expansion plans of retailers in 2010.

The report also found that new shopping centres earmarked for emerging markets, such as Poland and Turkey, would see a resurgence in retailer expansion going forward.

Nelville Moss, head of EMEA retail research at CBRE, said: "The shopping centre development market in Turkey, for example, has sprung back to life.

"This resurgence activity is due to increased confidence among retailers, developers and investors on the back of the strong economic growth seen in 2010, and the forecast of equally strong growth in 2011."

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