European retail sector turns the corner

Mapic may have lost some of its lustre since the outbreak of the financial crisis, but five years on, the general consensus at the annual party for the European retail industry last week was that the sector does appear to have turned the corner.

Broadly speaking, there’s a greater level of confidence,’ commented Peter Gold, head of EMEA retail at CBRE, in an interview with PropertyEU. ‘Rightly or wrongly, many feel that the eurocrisis is behind us and retailers are broadly expansive.’

However, significant differences remain across Europe, he added. ‘Europe is very diverse. That is reflected in the differences between Germany, France and the UK. The Germans don’t spend as much as UK. And the Netherlands, for example, is now going through a rough patch. But there is more confidence in Spain and Italy. The market is normalising, and that’s a positive thing for the industry generally.’

Investment surge
Robert Bonwell, CEO for retail at Jones Lang LaSalle, also detected an improved mood at the Mapic fair in Cannes in mid-November. ‘This year we are feeling the end of the crisis, with Spain and Italy feeling stronger and Western Europe really strong. We are seeing strength in Istanbul and Moscow and the whole of Europe has that better feeling.’

That positive sentiment is also borne out by new data showing that retail investment is on the rise. European retail investment surged 14% to €16.2 bn in the last six months compared with the year-earlier period, according to new research published by RCA.

The UK maintained its leading position, attracting 33% of the capital in Q2 and Q3, although the largest increase in investment volumes was seen in Central and Eastern Europe, with growth of almost 50%. In Central and Eastern Europe, Russia and Poland attracted the vast majority of the capital, with 6% and 5% of European market share respectively. High-volume investment transactions included the purchase of Metropolis Mall in Moscow (50% stake) by pension fund CalPERS and Hines.

In the search for product, some investors are looking further afield, Bonwell noted. ‘Investors are looking at South Africa, at bigger regions of Russia, at some of their portfolio across the mature countries. It’s all action.’

Return of US investors
Stephan Jung, head of retail consultancy at Savills, is also upbeat about prospects for the retail investment market. ‘Last year, everything was core or non-core and if it was non-core, investors wanted it very cheap. This year we’re seeing more shades of grey. Assets are being positioned correctly. I think it’s fair to say that the market is normalizing.’

Savills’ German office is currently marketing four retail portfolios including one comprising supermarket stores in smaller German cities. Overall, the four portfolios comprise 70 assets in the core-plus to value-add category in both the big seven and other secondary cities in Germany. Aside from big retail investors like Allianz and MGPA, Jung sees other players joining the list of buyers, in particular specialist retail funds and listed companies from the UK and Germany.

‘We’re also seeing more interest from US investors. They are coming back. UK and German specialist funds are active and have proven they can do a purchase. The appetite is strong and investors have a lot of offers on table.’

While rental growth remains slow, Jung believes investors can still boost rental income on non-core or value-added assets through active asset management. ‘Investors are willing. I think we will see a wave of deals at the end of the year.’