Retail losing shine as markets become overheated

Retail may have proved to be the most resilient property segment in the downturn but it is becoming increasingly challenged, delegates at the annual EPRA conference in London learned last week.

Prices for prime shopping malls in some corners of Europe are getting ‘somewhat crazy’, Alexander Otto, CEO of German retail specialist ECE Projektmanagement, warned. ‘Germany is OK, but Poland is completely overheated,’ he said during a panel session at the Landmark Hotel.

Otto questioned the premise expounded by fellow-panellist Guillaume Poitrinal, CEO of Unibail-Rodamco, that there are currently more sellers than buyers in the retail investment market, particularly in the periphery of the mature markets like France and Germany. Otto: ‘There’s so much money around and not much confidence in public markets. Insurers, pension funds and sovereign wealth funds are moving out of bonds and may reallocate more money to real estate. That will push up prices. I’m doubtful whether prices will fall.’

In a separate session, Francis Salway, CEO of Land Securities, cautioned that the retail sector now faced ‘a decade of change’ after 20 years of virtually unabated real growth in rents. ‘The next 10 years will be patchy, there will be lots of change in the retail sector itself and retail properties.’

Salway predicted there would be some permanent losers in the UK market where Land Securities is active, particularly in the secondary segment, but added that there would be opportunities as well. ‘What we are interested in is sorting the wheat from the chaff and understanding which conurbations will continue to provide an important offer to a large catchment population. They may not be glamorous but they have an important role to play. We will be happy to invest there.’

Leon Bressler, partner at Perella Weinberg, said he was keen to expand the company’s position in the German retail market. The US private equity firm claims to be the second largest operator in Germany after ECE following the acquisition of a majority stake in Essen-based Management für immobilien (MFI) in August 2010. But Bressler said he would also pursue opportunities through the debt route, by buying loans or CMBS.

The former chairman of Unibail said the real estate world needed REITs, non-listed funds and other players to get out of the current crisis. ‘REITs have some advantages, but they are not better companies for buying debt. And buying debt is a way to access real estate in a more intelligent way with low risk and high returns.’

In the past few years, Perella Weinberg has already made a number of acquisitions in France including the purchase from Goldman Sachs of a substantial chunk of the CMBS backed by the landmark Coeur Defense scheme in the Parisian business district. Earlier this year the private equity group mandated French developer Altarea-Cogedim to redevelop the Chartis office tower in La Defense which it acquired from American International Group's property casualty business Chartis.

Poitrinal of Unibail-Rodamco maintained that there was still a shortage of supply of large malls in Europe, especially compared to the US and Asia. But Olivier Piani, CEO of Allianz Real Estate, pointed out that it was ‘extremely difficult’ to buy large single assets. ‘Offices may be more of a commodity, but it is possible to find stock,’ he added.