The shopping center sector continued to show strong performance across Europe as a whole last year, according to the fourth edition of the CB Richard Ellis/IPD European Shopping Centre Digest, launched at MAPIC on Thursday 15 November 2007.
In 2006 the shopping center sector out-performed the other real estate sectors in eight out of the fifteen European countries covered by the Digest, and in a further two countries out-performed the all retail property index for that country. (see Fig 1).
For the second year in succession, the star performers in the shopping center sector were France and Ireland, which generated returns of 24.9% and 20.5% respectively. The lowest shopping center total returns in 2006 were, for the second year running, generated in Germany (4.9%) and Switzerland (7.8%). In both countries, returns improved relative to the previous year, but with only modest rental growth and at best minimal downward yield shift. These were the only two countries where shopping center returns did not reach double digits.
The Digest pulls together investment performance data from 1,616 shopping centers in fifteen countries across Europe, with a combined total capital value of 88.4 billion at the end of 2006. Based on data compiled by Investment Property Databank (IPD) from its national databanks, the Digest provides a unique guide to the investment performance of the sector.
Turning to market trends in 2007, according to CB Richard Ellis European shopping center investment volume totalled 997 million during the first half of the year, almost identical to the equivalent period in 2006. Volumes rose significantly in the UK, Germany, Italy and most of Central and Eastern Europe, driven by further growth in cross-border acquisitions.
"During the first half of the year, almost 70% of European shopping center purchases were accounted for by cross-border investors," commented Nick Axford, Head of EMEA Research & Consulting. "This demonstrates the ongoing desire by investors to build their European portfolios, preferably by diversifying their holdings across Europe," he added.
The full impact of the credit squeeze has yet to be seen in the property investment market, and this is likely to impact transaction volumes in the final quarter of the year. "Retail assets, and shopping centers in particular, tend to be good defensive assets during times of uncertainty, and thus remain very popular amongst European investors," commented John Welham, Head of EMEA Retail Investment for CB Richard Ellis. He continues, "Prime shopping centers are difficult to replicate or replace if sold and these qualities have helped to protect values when other sectors have softened. There is no doubt that prices have eased in some markets since the summer, less so for prime product but particularly for secondary stock. Whilst we are still seeing transactions, there is evidence to suggest that both buyers and sellers are waiting for clearer signs of how the turbulence in the financial markets will ultimately feed through into the wider economy, and into the property market in particular."
"At present, the impact of the credit squeeze remains largely confined to the investment markets," adds Axford. "Whilst there is a risk that the impact will spill over into the real economy, with a consequent effect on the expansion plans of retailers and retail sector rental growth, at present retailer confidence remains robust."
Welham continues, "Retailers are continuing to focus on expanding their European networks, particularly targeting the rapid consumer spending growth being seen in Central and Eastern Europe. This aggressive attitude towards building market share in these emerging economies will help sustain investor demand over the medium term."
Source: FD Tamesis