Cushman & Wakefield is predicting that retail rental falls in most European markets should bottom out by mid-2010 although sustained rental growth is unlikely to be achieved until 2011.

Cushman & Wakefield is predicting that retail rental falls in most European markets should bottom out by mid-2010 although sustained rental growth is unlikely to be achieved until 2011.

In its new European retail report 'Key Drivers in Retail for 2010', the company expects a relatively positive 12 months in the retail occupier and investment markets including increased retailer expansion and positive total returns by mid-year for core assets in most countries.

The report identifies 12 key drivers of the market in 2010, including economic outlook, consumer sentiment, retailer demand and retail supply. Twenty-five countries are rated against these drivers to provide a picture of the likely relative strength of the market across Europe. All the Scandinavian countries perform well with the Czech Republic, Germany and Slovakia also expected to provide an environment conducive to growth. The picture in Ireland and Spain, however, looks less positive and these markets are least likely to see a return to growth in 2010.

One of the key factors which is expected to drive growth in 2010 is the relative affordability of retail space. Retail rents have fallen across most markets in the last two years. High street rents in Romania and Ukraine for example have fallen by over 40%, with a further nine markets recording falls of over 10% from peak to trough as at end September 2009. Retailer demand is already beginning to increase as rents seem to be bottoming out in many markets. Certainly for prime space, there has been an increase in demand from major retail brands across borders in a bid to secure AAA locations at rents which appear to offer relatively good value.

The outlook for retail property investors is also brighter than for some time. Capital values for retail property have, over the last 12-18 months, seen significant falls. It is encouraging therefore that there is now a marked slowing in the pace of yield increases, with the UK becoming the first major market to record yield compression having peaked in Q2. There is scope for more markets to follow the UK’s lead, although this will depend increasingly on rental growth which may be constrained until 2011.

Darren Yates, analyst in Cushman & Wakefield's European research group, said: 'On balance, 2010 should be better than 2008 and 2009 in terms of the overall economic and retail environment, although the recovery is expected to be slow and fragile. However, on a positive note, low interest rates should support businesses and consumers and, together with lower rents in many areas, this should help to boost activity in both the occupational and investment markets.'