An abundance of capital and debt will continue to drive the European retail investment market in 2015, accprding to Jaap Gillis, CEO of Bouwfonds Investment Management.

An abundance of capital and debt will continue to drive the European retail investment market in 2015, accprding to Jaap Gillis, CEO of Bouwfonds Investment Management.

‘One of the drivers of investment is the recovery of the economy. But in view of all the political turmoil we're seeing around us, I’m feeling less optimistic than I thought I would at the beginning of 2014. The political situation has set us back a bit. On the other hand, money is very cheap and more money is available. That will probably push prices up and yields down – in fact that is already happening today. The question is how long that will continue.’

Gillis made the comments at PropertyEU’s Retail Outlook Investment Briefing held at the Mapic Retail fair in Cannes in late November. The amount of equity is quite astounding, agreed fellow-panellist Chris Gardener, Senior Director, EMEA Retail Investment at CBRE. ‘The capital stack is increasing and becoming far more diverse. There are a number of intra-European funds, but we’ve also got the more experienced North American investors and we’re seeing the introduction of Asian capital, either via European fund managers or directly. That will be one of the drivers that keeps cap rates low and could make them go even lower in 2015. We live in a low-growth environment. The bigger question for 2015 is whether this is the new normal. Is this what we have to be prepared to accept for the coming years?’

DEBT MARKETS
The debt markets have also freed up, he added. Two or three years ago, an investor would have to draw on several different banking sources to finance a large shopping centre, he pointed out. ‘There is an increased availability of debt and, what is important, an ability to transact with just one bank on a large shopping centre transaction.’

At the same time, organic rental growth is going to be very difficult to realise except for in a few locations, Gardener said. ‘If you’re looking where to allocate capital outside of the UK, I think Germany will probably be at the top, as well as Spain and France.’

However, scarcity of stock is becoming ‘a big issue’ in some markets like Germany, he added. ‘It’s deliverable product and investment grade product that is really lacking and the thing which will hold the market back. Cap rates across the spectrum are back to the historic lows of 2004/08. Where are people going to deploy their capital and where is the product going to be released? That will be key for the 2015 outlook.’