BRIEFING: Retail investment surge to continue in 2015

Increasing consumer confidence, economic recovery and weight of capital are all contributing to the strength of Europe’s retail property sector, market experts agreed at Property EU’s European Retail Investment Briefing in London on Thursday.

Investment in the retail sector soared in 2014 and the trend is likely to continue in 2015, said Andrew Phipps, head of retail research EMEA at CBRE, which hosted the briefing at its City offices.

A total of €54 bn was invested in the sector in 2014, up 24% on the previous year and the highest level since 2007, with a marked spike in the last three months of the year. Ireland and Spain hit record annual totals, while recovery markets like the Netherlands and Portugal also performed well.

Cross-border capital flows into the retail sector grew to €21.9 bn and accounted for a 42.5% share of the total. Of this figure, intra-European cross-border investments accounted for €7.9 bn while €7.5 bn came from North America.

While there is no shortage of capital targeting the sector, much of the competition for assets is between European investors, the briefing heard. ‘Retail is hard to understand for new entrants, so investors from Asia prefer to start with offices,’ said Andy Watson, CIO for Continental Europe at LaSalle IM.

‘New capital sources from Asia, the US and Canada are not having an impact on European retail, because they feel more secure investing in offices in London or the German cities, although that is likely to change over time,’ agreed John Welham, head of European retail investment at CBRE.

Investor intentions
The economic backdrop for the sector is positive. Eurozone consumer confidence is at an 89-month high and GDP growth is set to grow between 1% and over 3% in Europe in 2016, according to official European Commission estimates, with Ireland and Eastern Europe performing particularly well. In terms of European investors’ intentions, over half (52%) plan to invest in Western Europe and 7% in Eastern Europe, with 22% looking at North America and 11% to Asia.

According to CBRE research, the perception that property has become over-priced was cited as the biggest threat to European real estate markets, followed by an economic slowdown outside of the EMEA region.

Interestingly, the risk of a break-up of the eurozone and an inability to source new debt featured very low on the list of investor fears. ‘Debt markets are continuing to relax, with larger loans available, margins coming in and lenders prepared to look at riskier opportunities,’ said Phipps. ‘Among lenders and investors there is a willingness to find the bed of roses in the garden of thorns.’

Sometimes what appeared to be a thorn turns out to be a rose: the growth of online shopping, for example, is no longer seen as a threat but rather as an opportunity. ‘Retailers understand how important the physical stores are, and they have discovered that if they close shops their internet sales actually go down, because the brand has less visibility,’ said Kim Politzer, director of European research at Invesco Real Estate.

As urbanisation increases across Europe, urban shopping centres with good transport links are emerging as winners. More discerning consumers mean that shopping centres are seeking to offer a better experience and more attractive environment through refurbishment and other upgrades. As LaSalle’s Watson put it: ‘That is the beauty of retail: it reinvents itself all the time.’

Click on the attachment below to read CBRE's retail report