GLOBAL - Retail property assets have become increasingly popular for institutional investors, but the sector is fraught with challenges, listeners heard during IPE Real Estate's Investor Forum webcast last week.
Hermann Aukamp, CIO and director of real estate investments at NAEV, told online listeners the German pension fund was looking into how the rise of internet shopping would affect future retail investments.
John Forbes, real estate industry leader at PricewaterhouseCoopers, agreed it was "a very interesting moment for retail", but cited future consumer spending trends and aging populations as equally - if not more - important factors.
Forbes said long-terms trend suggested consumers would continue to rein back their spending and that retailer chief executives would look to counter this by driving down costs to their businesses.
"This is likely to continue as consumers choose to spend more on leisure and technology or are forced to devote more of their income to housing and fuel," he added.
"As the reaction of CEOs to that is to look at driving costs out of the system, it poses a significant challenge to retail landlords."
However, the most important factor was demographic change, he said, given that only the over-60 bracket of Europe's population is expected to increase in the future.
For this reason, investors should consider emerging markets like China, India, Brazil and Turkey if they want to gain exposure to long-term consumer growth.
Aukamp said NAEV had invested in a real estate fund with exposure to high street retail in Tokyo, a very unique market.
For investors, he said, it was not so much about demographics and trends within certain countries, but investing in retail assets in good, central locations that still performed when the demographic picture got worse.
Michael Hornsby, partner at Ernst & Young in Luxembourg, pointed out that, for large investors, gaining access to emerging markets - which invariably entails joint ventures with local operators - comes with its own challenges.
"These can be rather complicated to manage and require a lot of trust and upfront planning with joint venture partners, and they need to be maintained," he said.
"Often joint venture partnerships run into problems, not only when are they unsuccessful, but also when they are successful."
He said local players often ended up controlling the accounting and cash flows and could "hold things up" in terms of decision-making and providing transparency to international investors.
Hornsby added: "It is something that is inherent to these emerging markets and for which there is no silver bullet."