Strong interest in prime French retail set to continue: Savills

The strong increase in French retail investment witnessed in the first six months of 2010 is set to continue in the second half, according to property adviser Savills, whose latest French retail bulletin reports that H1 investment volume reached EUR 2.1 bn compared to EUR 529 mln a year earlier.

The dramatic increase in investment turnover is a result of the completion of several prime retail deals including the Simon Ivanhoe portfolio (around EUR 476 mln for the French assets), Cap 3000 (EUR 450 mln) in St-Laurent du Var and Espace St-Quentin (EUR 176 mln) in St-Quentin en Yvelines.

Christophe Gouny head of the retail department at Savills commented: 'We believe that this upward trend in investment is set to continue throughout the second half of 2010 as some major assets are currently under negotiations, including l'Heure tranquille in Tours for EUR 80 mln.'

The competition between investors and the scarcity of prime investments has led to a compression of yields according to Savills. In the first half of 2010 prime yields for large regional shopping centres was 5.50% (-50 bps y-o-y) and 6.75% (-25 bps y-o-y) for major retail parks compared to 6.00% and 7.00% one year ago. Secondary rates remain relatively stable and ranged from 6.75% for shopping centres to 8.00% for retail warehouses.

Savills said rental values for the most established shopping centres and retail parks remain stable whereas a significant downward rental correction is expected for secondary locations. Since the end of 2008 rents in secondary locations have declined by 11.5% from EUR 1,300/m2/year to EUR 1,150/m2/year for shopping centres units below 50 m² and down by 14.3% from EUR 140/m2/year to EUR 120/m2/year for retail warehouses units of circa 1,000 m².

Savills predicts that retailer demand will continue to weaken, causing vacancy rates and a continued downward correction of rental values. Lydia Brissy, Savills European Research, commented: 'For the best located premises, retailers are choosing to stay in existing units at their current rents even if this implies an increase of their affordability rate rather than face the cost of moving.'