The latest edition of PropertyEU’s sister publication RetailWatch was spot on with its interview with Raymond Cloosterman, the founding director of Rituals.
On Thursday evening it emerged that the Dutch retail chain won the Mapic award for the best retail global expansion. The second edition of our specialist retail publication, which was available at the Mapic real estate fair in Cannes this week, had already picked up on the fact that Rituals is plotting 1,000 new stores globally. The plans follow a stunning expansion in the retailer’s home country and Europe in the past 15 years, during which Cloosterman has boosted turnover from zero to €0.5 bn.
In this context, Spanish outlet centre developer Neinver also deserves a mention after winning the Mapic award for the best O2O (online to offline) strategy. RetailWatch appears to have had visionary insight on this achievement as well as it also contains an interview with Neinver’s managing director Carlos Gonzales.
While Mapic seemed quieter this year than previous editions, the quality of the attendance left nothing to be desired and our RetailWatch editor Nicky Godding had her hands full gathering more ideas about amazing new retailers, trends in asset management and other retail innovations. The news will appear later this month in our new RetailWatch newsletter and website.
Meanwhile the rest of the PropertyEU team pursued its own annual Mapic ritual, with a packed diary of interviews with landlords and agents about the current state of the retail investment market and deals on the market.
State of play
A PropertyEU investment briefing hosted by Immofinanz on the second day of the fair painted a good picture of the state of play. The retail real estate investment landscape is set to change quite significantly in 2017, according to Herman Kok, head of research at Multi Corporation.
Kok pointed out that a growing number of international investors have been targeting European retail real estate in recent years on the back of low interest rates and falling bond yields. The question is how long that trend will last given recent political events such as the Brexit vote in the UK and the election of Donald Trump as president of the US.
‘Interest rates are now rising and bond yields are doing the same,’ Kok pointed out. ‘The parameters for retail real estate investment may change in 2017.’
That said, retail real estate remains a safe bet, noted Jeremy Eddy, head of retail capital markets at JLL. ‘Safety is paramount for investors, it remains a defensive asset class. That’s where investors want to be. Retail real estate has continued to generate consistent returns in an uncertain political climate despite the economic challenges.’
Fundamentals remain positive
Asked where the retail real estate investment cycle is at present, Eddy said the fundamentals remained positive. ‘It’s still a pretty good place to be right now.’ He added, however, that occupier trends may well challenge the investment paradigm in the coming years and that deals are taking longer generally to complete than in the past. ‘Appetite is extremely strong again, but the market is not without its challenges. However, they do tend to rear their heads in different markets at different times.’
While investment in the UK has slowed since the Brexit vote and total volumes are not expected to reach last year’s record levels, Eddy said he was looking forward to ‘a reasonable end of the year’. With institutional investors struggling to find product, anything that is prime is setting a new benchmark, he said, pointing to the sale of Diagonal Mar to Deutsche Bank for €495 mln. The vendor Northwood Investors reportedly fetched a yield of 4.5% on the sale.
John Welham, head of retail capital markets at CBRE, put it this way: ‘4% is the new 5%.’
Like Eddy, Welham is relatively upbeat about prospects for the retail investment market, despite the fact that yields are currently lower than in the previous cycle. He pointed out that a prime French shopping centre would have fetched a yield of 5% in 2006 at a 3% cost of capital. By contrast, a prime shopping centre yielding 4% can be financed for ‘next to nothing’ at present thanks to low interest rates. ‘There’s still some room for falling yields if the asset has the potential to grow rents and boost sales,’ he argued.
CEE is heating up
Across Europe, markets that have seen strong investment growth in the past year include Spain and Italy, in particular Milan, but Central and Eastern Europe is also heating up, the PropertyEU investment briefing heard. ‘We’re seeing some strong competition from South African and Israeli investors,’ noted Phillipp Gansch, head of development at Vienna-listed Immofinanz. ‘It’s becoming quite tough in some markets like Poland to find good locations. Prices are at a really different level than two years ago. Sometimes we have to say no to a deal.’
Falling yields in the more mature CEE markets like Poland and Czech Republic are pushing some investors further afield into countries like Slovenia, Serbia, Croatia and Macedonia where yields are generally higher. A case in point is the recent acquisition of Arena Centar in Zagreb by South African-backed New Europe Property Investments (NEPI). The 62,000 m2 shopping centre, which has been described as the best retail asset in Croatia, fetched a price of €237 mln.
While assets in core markets are very expensive, there is still good value to be found in second-tier markets like Croatia, Eddy noted. So far South African investors appear to be heading the charge into this region. By the end of the year, JLL is forecasting retail investment volume from this group of investors to reach €4 bn.
Mapic does not have an award for the fastest growing group of retail investors, but that impressive track record surely puts the South Africans in the same league as Dutch retailer Rituals.
Judi Seebus
Editor in Chief
