The growing scarcity of dominant shopping centres in Europe is prompting some investors to look at retail assets in transportation hubs such as railway stations or airports.
But German open-ended fund manager Union Investment is not looking at these alternatives, the company's head of investment Henrike Waldburg told the ICSC conference in Milan on Tuesday. 'It's not an investment target for us. Transportation hubs are very interesting, but the question I would ask is: what do we buy then? Is it a piece of retail real estate or an infrastructure investment?'
Waldburg said she envied the flexibility that insurers and pension funds have to invest indirectly in retail real estate by acquiring a stake in attractive retail landlords and managers. 'That is one way to access the same assets. Another route is via debt structures. That is a great strategy these days if liquidity is an issue. But as an open-ended fund manager, that is not something that we are able to do.'
CBRE Global Investors has done some investment in retail assets at tube stations, but this is not a dominant strategy, the company’s head of retail EMEA Florencio Beccar said during a panel discussion entitled 'The pursuit for irreplaceable assets'. 'We're looking more at traditional retail, we see more potential in that in terms of deal flow,' Beccar said
Appetite for value-add strategies
CBRE GI has some appetite to turn around assets, he added. 'It depends on our clients. Some clients are interested in very dominant shopping centres, but others see more potential in value-add strategies where you can turn a product into a long-term [institutional] asset.'
While tertiary markets were a 'bit too far' away for comfort, secondary markets were definitely on the agenda, Beccar said. 'Shopping centres with a catchment of 150,000 people and a 25-minute drive away...We are playing in that market every day. A dominant shopping centre in such an enclave can be a very powerful asset. Sometimes we prefer to be there than in the environment of a big dominant city.'
The nature and profile of the investor does have an impact on what sort of retail assets they are prepared to buy and ultimately affects capital expenditure decisions, Andrea Orlandi, the European head of Canadian Pension Plan Investment Board (CPPIB), said. 'It's more challenging if you have a five-year time frame, you may not want to invest in capital expenditure as you won't see [enough] capital growth.'
Capital expenditure is key to maintaining the value of a shopping centre, he added. 'If your shopping centre looks the same in 10 years' time, you have failed. By not doing anything, you're taking a position…You always have to improve it, that's the starting point.'
Orlandi conceded that CPPIB has a predilection for dominant shopping centres, but said not every mall has to be or can be a Westfield shopping centre. Smaller shopping centres offer a different economic dynamic, he said. 'You just have to accept that rents are not going to grow as much…and you can't drive rents if people don't want to go there.'
