The recent restructuring of Europe’s retail parks is improving investor perception of the prime retail warehousing sector, according to a new research report issued by Savills.
Retail warehousing volumes (including hypermarkets, supermarkets, retail parks and stand-alone units) in Europe have been rising at a significant pace (38% per annum on average) since the bottom of the market in 2009, the report notes.
Indicatively last year's total volume of €11 bn was 4.2 times higher than the total of 2007, and volumes in the first three quarters of this year were already close to €6.6 bn, or 60% of last year’s level and almost double the 10 year long term average.
Germany accounts for the lion’s share of investment activity into the sector, at 41%, confirming its safe haven status at the top of investors’ list of choices. In the second place follows the UK at 27%, which has an established but evolving retail warehousing sector that is ahead in the cycle of structural change.
The sector has been in recovery since the global financial crisis, when the widespread drop in consumer spending and the onslaught of e-commerce took their toll on the European retail warehousing sector, creating retailer insolvencies and creating vacancies in retail parks.
'Retailers and landlords realised that the changes in the retail sector were structural rather than cyclical,' said Eri Mitsostergiou, director of Savills European Research. 'It was time to adapt or die, and out-of-town schemes needed to offer a diverse mix of product categories, wide leisure and an F&B offer plus an overall attractive environment in order to become a destination of choice.'
Savills has observed that the occupational markets of out of town warehouses are now increasingly driven by value retailers as well as non-traditional retail warehousing retailers. The UK has seen value retailers such as Aldi and Lidl more than double their store count in out-of-town schemes from 5,000 to 10,000 since 2014, while the leisure component and F&B offer has had an ever growing importance in the retail park tenant mix and positioning. Often these retailers are filling voids created by the downsizing and subdivision of larger units.
Oli Fraser Looen, head of European Cross Border Retail Investment, Savills, commented: 'The changes in tenant mix and market positioning of retail parks have been facilitated by the efforts of owners, asset managers and developers of retail parks to ‘survive’ in an evolving retail scene, and this has in turn attracted capital.'
Rents however, are yet to recover on the same trajectory as investment activity with the average prime rent across Europe being recorded at just 7% above the cyclical low level and still 13% below the past peak in Q4 2007.
From an investor’s perspective, the prime retail warehouse sector is one of the most competitive within the real estate spectrum, with an average prime of yield of currently 5.7%.
