Europe's non-core markets experience most significant rise in retail investment

10 January 2017

International real estate advisor Savills has reported that investors into Europe’s retail sector are shifting their interest to some of the continent’s non-core markets.   Investment into Europe’s retail sector during Q1-Q3 2016 reached EUR 33.3bn across the 15 markets that Savills covers, down 28% from the 2015 record volume. However, despite the overall drop of total turnover in the two largest markets of the UK (-18%) and Germany (-46%) during this time period, Europe’s non-core markets in contrast have experienced a significant rise in retail investment. These include: Ireland (223% to €1.46bn); Poland (126% to €1.4bn) and Italy (119% to €1.8bn).

“The strong performance of some non-core  markets such as Ireland and Poland in terms of size of deals is likely to be attributable to the fact that these markets are slightly behind the core markets in the current investment cycle,” comments Eri Mitsostergiou, Director of European Research, Savills.  “2015 was a record year for total investment volumes across Europe, underpinned by the numerous mega deals and large portfolios, yet activity this year has been constrained by a lack of stock in core markets. It is the ready supply of retail product and in fact portfolios,  which is driving investors to the non-core markets.”

Savills also recorded that the polarisation between prime and secondary locations is becoming an increasingly marked characteristic of the European retail market. For example, demand for the best units was reflected in higher rents (yoy) commanded by high street (HS) & shopping centre (SC) locations, particularly in cities where international retailers are expanding, such as Brussels (8% HS), Copenhagen (11% SC, 5% HS), Amsterdam (2% HS), Stockholm (2% SC) and second tier cities where retail rents have not yet fully recovered such as Athens (12% HS) and Dublin (3% HS).

Notably, there has been a rise of investment into prime high street units, which  is reflected into the continuous yield compression trend noted in the prime segment of this sector.  The average prime high street yield in the Savills survey area has reached the record low of 4% in Q316, 16 bps lower than Q315. The lowest yields were noted in London (2.9%) and Paris (2.75%). The highest annual yield compression was recorded in Milan (-75bps) and Cologne (-50bps), while in almost all markets prime yields are at record low levels

Oli Fraser Looen, Director,  Savills Cross Border Retail, comments: ‘Investor appetite for prime high street retail in Europe has been extremely strong, driving down yields to record levels. In Europe alone last year,  Savills was involved in high street deals which set new record yield lows in Milan, Copenhagen and London, and similar records were set in Paris and Germany.  The pricing has been driven predominantly by the increasing interest from retail families looking to acquire assets in core locations for long term strategic purposes,  and also by high net worth individuals who are significantly lowering their return requirement for high street assets as they need to spend capital that is currently earning minimal interest in the bank.” 

“In 2017, we are likely to see further yield movement in Europe’s most desirable shopping streets and there could be a great deal of activity as owners of prime retail assets consider exiting into new market conditions. As some investors become priced out of the core markets, we would expect to see further demand for non core high street locations, such as Amsterdam, Madrid, Dublin and Madrid. This again will have the impact of potentially driving up prices in these markets by the latter end of the year.”

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Key Contacts

Oliver Fraser-Looen

Oliver Fraser-Looen

European Investment Director
European Investment

Savills Margaret Street

+44 (0) 20 7409 8784

 

Eri Mitsostergiou

Eri Mitsostergiou

Director
European Research

Savills Margaret Street

+40 (0) 728 205 626