Retail yield gap between core and peripheral Europe set to close

Investors in European retail assets are shifting their focus to peripheral markets as economic conditions stabilise and financing availability improves, according to a new research report published by Savills.

This is resulting in a narrowing yield gap in the retail sector between core and peripheral Europe, the broker said, pointing to a reduction in the average yield gap from over 200 bps at the end of 2012 to 188 bps in Q3 13.

Furthermore, the overall average retail yield achieved in Q1-Q3 13 in the markets surveyed stood at 6.7%, against 6.4% in the same period in 2012. 'This is because investors are beginning to develop an appetite for risk as better value can be achieved in the peripheral and non-core markets as yields for prime product come in,' Savills said.

In terms of investment volumes, peripheral markets, including Spain and Italy, have doubled their share of the total retail investment volume in Europe to over 10% between Q1 and Q3 2013 compared with 5% in the same period last year.

Notable increases in retail investment turnover during this period have been recorded in Italy (+36%) and Spain (+119%), with significant transactions expected to complete before year-end, particularly in Spain.

Overall, core countries, particularly Germany, France, the UK and Poland, continue to dominate activity, accounting for 89% of the total retail investment volume in the first three quarters of 2013.

'A key contributor to the recorded rise of investment into non-core retail markets is the return of international lending over the past six months to these markets, including Italy and Spain,' said Danny Kinnoch, European cross-border investment director. 'These are lenders that cannot or do not wish to compete with the pricing of German banks and insurance companies that dominate lending in Germany and the UK.'