The first half of 2013 saw significant North American investment in European retail with North American investors being the strongest net buyers of property in this sector, according to the latest CBRE Research.
A total of €15 billion was transacted in retail real estate in H1 2013, which is an increase of 17% on the same period in 2012.
North American investors were the most active cross-regional buyers of European retail in H1 2013 overall - with €1.6 billion net. They focused their acquisitions on Russia and the UK, although they also made acquisitions in other major Western European markets such as Germany and France. In the last 18 months, American investors have set record-breaking (in terms of lot size) deals in Europe. H1 2013 was no exception, with the Morgan Stanley’s purchase of Moscow’s Metropolis Centre being the largest retail deal in Europe - and twice the size of the second-largest retail transaction.
Iryna Pylypchuk, Associate Director, EMEA Research, CBRE, commented: “North American investors stayed firmly focused on the shopping center segment, which matches their preference for large deal size and their familiarity with the shopping center sector. By value, shopping centers accounted for 75% of their retail acquisitions in H1 2013. This is very much in contrast to Asian and Middle Eastern capital, which, while acting across a wide range of geographies, has shown a clear preference for high street retail.”
North American capital’s appetite for European retail spans beyond the direct investment market, US fund manager is close to completing a corporate takeover of one of Europe’s largest shopping center developers - highlighting the willingness to commit large amounts of capital to the European market either – directly or indirectly.
In terms of the overall European retail investment market – the latest results are healthy, with €15 billion transacted in H1 2013, a 17% increase on the same period in 2012. In keeping with the historic trend, the UK and Germany were by far the two largest markets, followed by CEE, which driven by demand for Russian retail in particular, pushed the Nordic region into fourth place and France into fifth. Outside the above markets, there remains relatively little activity, especially in Southern Europe or the Netherlands. Despite attractive pricing in these markets, investor risk aversion continues.
However, this might change soon. Broader economic recovery in Europe is starting to manifest in improved retail sales and consumer confidence, especially across the main Western economies such as the UK, Germany and France.
John Welham, Head of European Retail Investment, CBRE, commented: “Looking forward, and considering the more positive economic trends, the pricing for prime retail is expected to remain fairly stable, with possible further yield tightening in some markets. The improved economic outlook, combined with tight development pipeline, should also translate into stronger rental growth prospects, certainly at the core end of the market. The fact that the euro zone is officially out of recession is leading more investors to pursue opportunities in the secondary sector.”
Valentin Gavrilov, Director, Research Department in CBRE, Russia, said: “US companies are the most efficient beneficiaries of the investment opportunities, offered by Russian commercial real estate market. During the last 3 years they generated about 23% of the total investment volumes, which is more than all other countries did altogether. Population incomes in Moscow are steadily approaching European levels, being supported by high oil prices. In this regard, we can just repeat once more that investors from other countries significantly overweight their risks and business doing complications in Russia.”