Two more hard years for retail occupier market: King Sturge

The European retail occupier market faces at least two more years of hardship, according to King Sturge's latest research on the sector. Noting that there are early signs of activity in European retail investment markets, the international broker warned the retail sector is 'seriously out of kilter' with any investment recovery.

King Sturge's European Retail Property 2010 reports that, given the well-documented decline in capital values in the last two years, the focus has invariably shifted to income streams. But King Sturge says that these have fared little better with average underlying rents across Europe's retail markets set to fall further in 2009, and many unlikely to return to positive rental growth until 2012.

As the investment and occupier markets are inextricably linked, improvement in the former may be derailed by occupational weakness, cautions the report. 'Some investment markets are running before they have got their occupier 'legs'','' commented Stephen Springham, retail research partner at King Sturge.

'Investment volumes are starting to come back and yields on properties let on secure income streams, typically for 10 years or more, have experienced dramatic yield compression since the spring. Rents, however, are generally at best stagnant or more commonly going backwards, in some cases significantly. Whether the rally has continued momentum is therefore extremely questionable,' Springham said.

'Vacancy rates in a few markets are now past their nadir, having peaked in most European markets in the first half of 2009. Whilst the pace of retailer fallout has slowed as the year has unfolded, a considerable number still have uncertain futures, and the next six months will be telling.'