CEE will show best retail returns in 2008, says ING RE

ING Real Estate expects to see the best retail returns for 2008 in Central and Eastern European shopping centres, with strong rental growth likely to continue in France, Sweden and Finland. Good rental performance is also expected in the Netherlands, Italy and Germany, the real estate giant said in its 'European Retail Views' presented at the Mapic retail fair in Cannes this week. In the UK, however, retail rental growth has halved over the past twelve months due to a consumer cooldown and oversupply, and an improvement is not expected for another year or two. The outlook for Swiss retail is 'somewhat bleak', with purchasing power falling as a result of rises in compulsory purchases (such as taxes and insurance) outstripping average wage increases.

ING RE points out in its report that consumer confidence in most European countries is still positive and above average in spite of a slightly negative impact from the recent credit crunch. The strongest returns from retail property may be expected, the report said, in those countries where domestic levels of debt are low, and where the potential for retail development is unfulfilled.

Retail remains the largest single investment class in Central and Eastern Europe (CEE), with the lion's share of attention focused on modern shopping centres. Romania and Slovakia are likely to see the highest levels of development in the region. The report predicts rental growth across most of the CEE countries, but warns that Romania is unlikely to see any growth over the next twelve months, as rents are already some 25% higher than elsewhere in the region, and a wave of new developments will serve to depress rents in Romania’s key centres.

Of the more traditional retail markets, ING Real Estate has singled out France as being a good performer next year, with Marseille likely to be the top performing individual market. The northern European countries of Sweden, Norway and Finland are also looking solid, as consumer confidence and the long-lasting retail boom show no signs of abating. Only Denmark has bucked the trend, with a shaky housing market knocking consumer confidence and bringing retail sales to a halt.

The southern European countries of Spain, Portugal and Italy have all enjoyed rent increases, with retail fundamentals performing well, and while markets in the Netherlands and Belgium have weakened slightly in the third quarter of 2007, figures are still above the EU average, as well as their national 10-year historic averages. Germany and Austria are also benefiting from strong consumer confidence, and while rental growth predictions are patchy across Austria, Germany looks fair across the board, with rental forecasts for Munich, Hamburg, Cologne and Berlin all looking positive.