What do investors think they know about retail?

At a time when retail sales in much of Europe are failing to stage the kind of recovery hoped for and consumer sentiment is lagging that seen in corporate Europe, it may seem odd that property investors are pouring money into retail rather than office or industrial property

Investment by Sector in EMEA

   

 

 

 

 

 

 

 

Cushman & Wakefield, European Research Group

 The mere fact that more stock has come available in what is typically an undersupplied market is obviously important but retail investment surpassed offices for the first time on record in Q1 2011 and while offices saw a big fall in activity in the opening quarter, retail went from strength to strength and investment in the year to March, at €41.4bn, was over 50% higher than a year earlier (EMEA Property Investment Report Q1 2011). 

So what are investors seeing – opportunities for growth, for income or for security? Arguably a bit of each although aside from a handful of markets, sales turnover will be fragile in the short term even if April was better than expected overall.

 A lot of investor demand is for large lots and the release of more shopping centers in markets like Sweden, Germany and the UK has and will continue to boost investment. At the same time, there is better demand for unit shops, which in key cities are a main focus for new retailer demand, and for food stores, seen as a sector with stability but also long term potential in the best locations. 

While the best underlying tenant demand and rental performance may be seen in the office and parts of the industrial market,  investors are clearly looking beyond short-term supply-driven cycles and are focusing on retail for greater long term security and lower volatility. What is more, investors are taking comfort in the fact that from a long term perspective, prime yields in most markets offer historically fair value. They are also seeking to focus on areas offering defensive characteristics or those aligned to future retail growth trends or with active management potential. Time will tell whether they are right!

David Hutchings, European Research Group, London

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