UK RETAINS POSITION AS LARGEST RETAIL INVESTMENT MARKET IN EUROPE FOR THIRD QUARTER
The UK retained its position as the largest retail investment market in Europe for the third quarter in Q2 2016, with €3.5 billion worth of investment, according to CBRE’s EMEA Retail MarketView. This represents 27 per cent of all European retail investment, which totalled €12.8 billion Q2 2016. Germany was the second largest market, although activity in both countries was muted, down 21 per cent and 23 per cent respectively on Q2 2015, due largely to a lack of investible stock and subdued investor confidence amidst market volatility.
Short supply of core assets meant both the UK and Germany saw high levels of investment into regional centres. CBRE research shows that in the UK 79 per cent of retail investment targeted markets outside of London, whilst in Germany the top six cities accounted for just 22 per cent of total retail investment.
Central and Eastern Europe performed particularly strongly in Q2 2016, with €1.9 billion transacted. This is more than three times the total transacted in Q2 last year. The increase in activity was dominated by Redfine’s acquisition of 75 per cent shares in the Echo Investments portfolio in Poland.
Funds continued to be the dominant buyer profile in the European retail investment market, representing 28 per cent of all European retail investment, according to the report. Foreign buyers accounted for 44 per cent of European retail investment in Q2 2016, 20 per cent of which came from outside Europe. Middle Eastern buyers have been acquisitive, targeting core assets in Western Europe; most notably a prime retail holding on the Champs-Élysées in Paris, which sold to Qatari investors. US-based funds have also been noticeably more active in Q2, seeking investment opportunities in Europe’s recovery markets in Southern Europe and Ireland.
Despite market uncertainty, prime retail assets in EMEA continue to attract investment and yields continue to trend downwards. The low yielding bond market is further compounding the yield compression in prime retail. As such, the CBRE EMEA Prime Shopping Centre weighted average yield fell below five per cent for the first time.
We have seen consumer confidence begin to recover in Q2 2016 from the downward trend we saw in Q1 and prime retail space is very much in demand. However, occupier demand for secondary retail space remains weaker and therefore is not seeing the uplift in rents that we are beginning to see for core and prime assets. This situation is also reflected in the investment market, where demand for prime and core retail space is much stronger than for secondary assets. This is evidenced by the continued spread between prime and secondary yields, which remains high.