The retail sector is leading the recovery in Europe, and nowhere is this more apparent than in Spain and Italy, delegates heard at the PropertyEU Southern Europe Investment Briefing which was held in London on Thursday at the City offices of TH Real Estate.
'Despite geo-political uncertainty in the past few months, Europe is on the way up and the recovery is happening even if growth is not spectacular,’ said Vanessa Muscarà, Senior Research Analyst at M&G Real Estate. 'In the continent Southern Europe is leading the recovery.’'
While in the UK after the financial crisis it was the office sector that recovered first, in Southern Europe it has been the retail sector to show signs of life and shake off the memories of the downturn. 'In Southern Europe retail has been the champion and led the recovery, beginning with shopping centres and extending to the high street and to retail warehouses,' she said. 'Consumers have proved the most resilient in these markets.'
The retail sector has also seen the most rental growth recovery, with the Italian market in particular posting double-digit growth in 2015. 'Milan, Madrid and Barcelona are well above the European average and we believe there is scope for further rent recovery,' Muscarà said. Shopping centres have been at the forefront of this positive trend, with increases of 25% achieved in the Italian market last year.
'Shopping centres provide many opportunities for investors in all Southern markets,' said Alexandre Fernandes, head of asset management at Sonae Sierra, a shopping centre specialist. 'The best opportunities are to be found in secondary shopping centres, well located even if not in prime locations, or in the redevelopment of existing assets, or in brand new developments in good locations. In all places demand exceeds supply.'
The office sector is expected to follow in retail’s footsteps, Muscarà said, as the pipeline is limited and demand is increasing: 'Looking at supply side dynamics, we believe it will be the next one to recover. There is scope for office rents to increase, as in cities like Madrid and Milan they are still some 30% below previous peak levels. Vacancy rates are predicted to come down, especially in Spain, thereby pushing rents up.'
After a stellar 2015, the first few months of this year have seen a slowdown in transaction activity, but again Southern Europe has proved to be more resilient than other areas. Transaction volumes are down by 10%, compared to 30% in the US and 40% in the UK, and the outlook is positive. 'We expect by the end of the year volumes in Italy and Spain will beat the 2015 figures,’ Muscarà said. 'Southern Europe will also lead the recovery in total returns.'
