European Retail Property Trends Q2

Retail: A rising star in the European market and Spain climbing the charts

• Retail volumes in EMEA totalled €14.7bn in Q2 versus €8.7bn for the same quarter in 2013.
• Market share rose to 29.2% in Q2 compared to 24% for 2013 as a whole.
• Year on year retail volumes rose to a 6 year high of €49.0 bn.
• • Prices are rising as competition intensifies
• Quality supply is limited but is now starting to respond to demand pressures
• Investors are still widening their search net by quality and geography.
• Volumes are forecast to rise 21% to €50bn in 2014.

Retail’s star continues to rise over the European real estate skyline, with volumes racing ahead in Q2 as a combination of improved product availability, greater macro-economic confidence and local evidence of at least stabilising retailer sales have helped to drive demand. What is more, activity is only likely to escalate in the second half of the year based on the volume of deals now under consideration or set to come to the market.

Volumes rose 39% in the second quarter compared to the first, easily beating a market wide increase of 20%. As a result, retail increased its market share and the quarterly total of €14.7bn was the best Q2 result since 2007.

According to Mike Rodda, Head of EMEA Retail Capital Markets at Cushman & Wakefield, “Improved sentiment is obviously good to see but the actual availability of good quality product has been key to getting the market moving. To date it has been core countries pushing the market ahead but the biggest change in momentum has been in southern Europe and notably in Spain, which is certainly one of the hottest markets in Europe at the present moment, if not the hottest.”

The core of Germany, the UK and France drew a market share of 64% in the quarter compared to 66% in Q1. Southern markets increased their share to 10% from 7% in Q1 while the Nordics also saw their share rise, to 8% from 3%. By country, Denmark and Finland saw particularly notable increases but Sweden, Italy and Spain were also up very strongly and markets such as Portugal and Hungary are now seeing more interest.

The search for quality and stock and not just areas of immediate economic growth is highlighted by the fact that France was one of the biggest winners in Q2, despite its relatively weaker economic position, with long term players seizing on often hard to find opportunities in this sought after market.

A number of large deals and portfolios have been closed, raising France’s market volume back above pre-crisis levels. Retail volumes in Western Europe as a whole stand at 62% of the prior peak level but in France they are now 27% ahead of the previous high point.

The audience for retail property continues to broaden and grow more international meanwhile, although particularly for larger assets, investors want experienced managers to be on board. At the same time, REITs are dominant in many areas, as shown by Land Securities victory in beating off domestic and international competition to buy Bluewater in the UK, as well as the growing influence of new REIT structures in Spain and Ireland.

According to Hutchings “The broadening base of demand will place further pressure on yields and more markets will see secondary yields in particular coming under pressure to fall. In those areas where rental growth expectations are well grounded, these falls will be sustained and will help to offset a reliance on yield gains and improved finance terms to drive performance- both of which will start to have run their course in the months ahead. However improvements in consumer sentiment are in general running ahead of actual turnover growth and rental pressures to date look to be selective and focussed on the best space. With a slower rental upturn likely for the mass market, investors and managers will need to be tuned into local retailing patterns to succeed.”