Savills latest French retail bulletin reports that investment volume in the first half of 2010 reached 2.1 billion compared to only 529 million during the same period in 2009. Savills reports that the dramatic increase in investment turnover is a result of the completion of several prime retail deals including the Simon Ivanhoe portfolio (circa. 476 million for the French assets), Cap 3.000 (450 million) in St-Laurent du Var and Espace St-Quentin (176 million) in St-Quentin en Yvelines.
Christophe Gouny head of the retail department at Savills comments: "We believe that this upward trend in investment is set to continue throughout the second half of 2010 as some major assets are currently under negotiations, including St-Martial in Limoges for 100 million and l'Heure tranquille in Tours for 80 million."
The competition between investors and the scarcity of prime investments has lead to a compression of yields according to Savills. In the first half of 2010 prime yields for large regional shopping centers was 5.50% (-50 bps y-o-y) and 6.75% (-25 bps y-o-y) for major retail parks compared to 6.00% and 7.00% one year ago. Secondary rates remain relatively stable and ranged from 6.75% for shopping centers to 8.00% for retail warehouses.
The firm finds that rental values for the most established shopping centers and retail parks remain stable whereas a significant downward rental correction is expected for secondary location. Since the end of 2008 rents in secondary locations went down by 11.5% from 1,300/m²/year to 1,150/m²/year for shopping centers units below 50 m² and down by 14.3% from 140/m²/year to 120/m²/year for retail warehouses units of circa 1,000 m². Savills predicts that retailer demand will continue to weaken causing vacancy rates and a continued downward correction of rental values.
Lydia Brissy, Savills European Research, Comments: "For the best located premises, retailers are choosing to stay in existing units at their current rents even if this implies an increase of their affordability rate rather than face the cost of moving."
According to Savills the drop in consumer spending and the decrease in retail trade turnover has caused a dip in new retail developments in the French retail market. Retail projects submitted to the CDAC (French planning authority) have decreased in both number and volume. Between January and May 2010, 498 retail projects were submitted to the CDAC totalling 1.3 million m² (140 million ft²) against 511 projects or 1.6 million m² (172 million ft²) during the same period of 2009.
Conversely discount retailers and value fashion retailers have accelerated their development activity. A notable example is Kiabi which has increased its development by 10% and more generally development from food discounters rose by 36%.