Savills: Rising demand for retail warehouses drives rents up

Rising demand for retail warehouses among international retail chains throughout Southern and Eastern Europe may generate further positive rental growth in the sector, according to the latest research report issued by international consultant Savills. The property services firm said on Monday that rents in the retail warehouse sector grew on average almost 8% year-on-year in the final quarter of 2007. This strong growth has continued in the first quarter of 2008 and is expected to grow further particularly in countries such as France, Germany, Italy and Sweden.

Rents of prime shopping centres grew instead an average 5.1% in 2007 with the highest growth rates noted in Istanbul (17.9%), Madrid (11.1%) and Athens (7.1%). The rents in this sector remained stable in the first quarter, but they are expected to slow down in the coming months, mostly because of a trend by several fashion retailers to move from prime retail locations in town to stores on out-of-town sites.

Eri Mitsostergiou of Savills Research said: 'The increase in demand for retail warehouse space throughout Europe has been driven predominantly by the bulky goods sector, although we are now seeing a growing demand from fashion retailers, especially in France. Retailers seeking to increase their profit per square foot are migrating to out of town locations in a bid to lower rental costs while also expanding their catchment area, which has driven the occupier market and will have a positive impact on rents in the sector.'

The increase in demand has also resulted in a substantial development pipeline in most European markets for out-of-town schemes. In terms of the investment market, the report states that over the last 12 months, interest in the sector has generally remained strong throughout Europe particularly in France, Hungary, Italy, Turkey, The Netherlands and Portugal, which has been driven by a good demand from international investors.

However, the general re-pricing of debt now taking place in the European markets has resulted in an up-ward pressure on retail yields. Prime shopping centre yields in the first quarter ranged between 4.0% in Paris and 7.0% in Istanbul, about 14 basis points higher than the final quarter of 2007. Madrid and Rome experienced the most significant quarterly softening of yields at 50 basis points.

With regard to the retail warehousing sector the research shows that prime yields ranged between 4.5% in Dublin and 7.2% in Berlin having moved out by nine basis points compared to the last quarter of 2007. Madrid also saw the highest yield movement in this sector at 55 basis points.