BRIEFING: Retail sector races ahead in UK and Germany

Europe is seeing a surge in retail property investment led by the UK and Germany, market experts said at PropertyEU's Outlook Briefing which was held in London this week.

Investment in European retail increased by 43% to €16.2 bn in Q1 2015, the strongest quarter for the sector on record, according to CBRE figures. The UK and Germany were by far the most dominant markets with a combined 61% of all investments.

The two countries also lead in the shopping centre segment with a 10-11% liquidity rate, which indicates a strong level of trading and activity. ‘In Germany there has been strong consolidation in the market and a very strategic focus on larger shopping centres of over 40,000 m2,’ said Henrike Waldburg, head of investment management – shopping centres at Union Investment Real Estate. ‘There is a strong belief that’s where shopping will happen in the future: large places which add to the consumer experience with restaurant and leisure offerings.’

German cities come to the fore
Looking ahead, the UK will continue to attract new foreign money because it is an obvious choice and “it is very easy to sell to an investment committee,’ said Jonathan Hull, managing director of EMEA capital markets at CBRE. ‘But while Paris used to be number 2 in Europe, now it is the German cities that are coming to the fore and attracting interest.’

Even French investors are increasingly choosing to invest across the border, said Jos Short, executive chairman of Internos Global Investors: ‘We like German retail. We have a fund of French high-net worth individuals investing in Germany and they cannot get enough. They will choose Germany over France any time.’ The feeling in the market, he said, is that until structural reforms are implemented, sentiment and activity in France will not improve.

‘We are experiencing a high level of interest in Germany on a daily basis,’ said Union's Waldburg. ‘We might take advantage of this positive sentiment and divest some of the stock we hold in our home market.’ In the current sellers' market many are expected to cash in, which means that more liquidity is expected in the market in the next 12 months.

Clouds on the horizon
Despite the positive momentum, there are some clouds on the horizon for both countries. Two abbreviations have become very familiar in this context: Brexit, the risk of Great Britain leaving the EU following the in/out referendum which will be held by 2017; and Grexit, the risk of Greece leaving the eurozone.

In the case of Brexit, the panellists agreed that the risk is significant, but opinions differ widely as to what negative impact, if any, an exit would have on the real estate sector.

A Grexit is a far more immediate danger. The fallout from Greece leaving the eurozone could even reach Germany. ‘Even in this positive environment, with such strong appetite for European real estate, it is important to be aware of the risks,’ said Richard Gwilliam, head of property research at M&G Real Estate. ‘Even Germany is at risk from a possible crisis in Europe.’