Core markets account for 80% of retail investment in Q1

Direct retail real estate investment in Europe in the first quarter 2010 accounted for EUR 5.4 bn, more than double the volume of Q1 2009, according to Jones Lang LaSalle. ‘The Big 5’ core European markets continue to be the main focus for investors, with volumes in these markets (UK, France, Germany, Italy and Spain) accounting for over 80% of total retail transactions across Europe.

Jeremy Eddy, Head of EMEA Retail Capital Markets, said: 'There has been a major rebound in retail investment activity during the start of the year and we are delighted to have been involved in a significant portion of this. Investors have been buoyed by increasing equity provision and an improvement in the debt markets, underpinned by the stabilisation of occupier markets. Geographic interest remains focused on the big five markets, and while investors took comfort in domestic investment in 2009, cross border transactions are now firmly back on the agenda. Similarly the product focus which initially targeted the very narrow prime assets and high street locations is now expanding to shopping centres and we expect renewed interest in the retail warehouse sector and more traditional hypermarket anchored schemes.'

Eddy expects investment volumes to continue to improve throughout the year, with a number of significant deals in the pipeline in markets such as France, Spain and Germany.

Germany emerged as the most active market in the first quarter, with transactions totalling EUR 2.3 bn, outpacing the UK (EUR 1.4 bn) for the first time in the last 10 years. Jones Lang LaSalle advised on approximately 50% of retail transactions by volume in Q1 2010 for Continental Europe, including Corio’s acquisition of the Multi Portfolio in Germany, Spain and Portugal, Union Investment’s acquisition of Alexa Shopping Centre in Berlin, Germany and Allianz’s acquisition of Allee Shopping Centre in Budapest, Hungary.

Anke Haverkamp, Head of Shopping Centre Investment in Germany, commented: 'In 2009, the German shopping centre market continued to see stable investor demand, sustained by strong domestic funds. However this year, we have seen an increasing number of international players that are now returning to the German market, and as a result, prime yields have experienced yield compression during the first quarter of 2010. We expect investment criteria to widen in the next couple of months due to the growing investor audience and the confidence in the German economy.'

Shopping centres have dominated retail transactions in Q1 2010, accounting for EUR 4.1bn, approximately 80% of the total volume across Europe. This has been driven by the re-emergence of major institutions, funds and property companies that are back in the market, having spent much of 2009 raising money and concentrating on their existing assets.

Their main focus is prime, dominant shopping centres. The decrease in number of deals (despite the large increase in volumes) provides further evidence of larger volume transactions and a focus on shopping centres. A total of 94 deals transacted in Q1 2010, down 11% from Q4 2009, with the average deal size therefore increasing from EUR 42 mln in Q4 2009 to EUR 57 mln in Q1 2010. There were 10 deals of EUR 100+ mln which is considerably higher than the quarter average of six in the last two years.

Corio was responsible for more than a quarter of the investment volume, partly because of the Multi portfolio but also including the purchases of Le Vele shopping centre in Italy from Schoders’ European Property fund 1 for EUR 103 mln and forward funding of Le Moulin de Nailloux in France for EUR 44 mln. As a result listed REITs were the largest purchasers in the first quarter, whilst developers/property companies were the largest vendors, accounting for over 50% of all sales across a broad selection of countries.

Eddy concluded: 'There is currently an opportunity for REITs and property companies who are keen to refresh and refocus portfolios and release equity from assets that have been worked hard during the last cycle. We see this trend continuing in Continental Europe where REITs are recycling their portfolio and taking on development opportunities where they are able to leverage their expertise and partner with equity, with the intention of driving future returns and expanding their geographic footprint.'