Investment in European retail property reached over 5 billion in Q3 2009, a quarterly increase of 18% and the highest total since Q3 2008, according to new CB Richard Ellis research. In contrast to the 34% jump in activity across all sectors, the upturn in retail investment has been less pronounced; although the downturn in retail investment was equally shallow.
Reflecting the trend in the overall European commercial real estate market, retail investment was heavily driven by a small number of western European markets in the last quarter. Germany, Spain and the UK clearly dominated the market, accounting for over 80% of Q3 European retail investment. Historically these three markets have accounted for just 63% of turnover. All three markets saw over 1 billion of transactions this quarter, but that is where the similarities between them end as the drivers behind their strong performance vary significantly.
Germany saw the sharpest increase in activity with 1.2 billion of retail investment activity in Q3 - the highest quarterly total since Q1 2008. In contrast to recent years, retail investment activity outpaced that of offices, a rare occurrence in the typically office-dominant German market. This was heavily influenced by a number of large shopping centre transactions including Mercado in Hamburg, Die Mitte in Berlin, and a share of the Neues Thier-Areal development in Dortmund. In keeping with the broader German market, local investors continued to dominate, with institutional investors and German Open-ended Funds being most active.
The high level of retail investment activity in Spain was heavily influenced by the 1.15 billion sale and leaseback of BBVA's high street bank branches the only retail deal over 1 billion in Europe this year so far. However, this level of activity is unlikely to be sustained in a market that saw an average 810 million quarterly retail investment even at the top of the market in 2006-2007.
The UK market also remained active in Q3, although it is still broadly driven by local buyers mainly acquiring retail units in the 10-20 million lot size. The only major shopping centre deals were (Australian Pension Fund) Future Fund's purchase of a 30% interest in the Bullring shopping centre in Birmingham for 238 million and RREEF Spezial Invest's purchase of the 83 million Prince Bishops shopping center in Durham.
Jan Dirk Poppinga, Head of Retail Investment for Germany, commented: "Germany is clearly starting to see more activity across the board and in the retail sector in particular. The first nine months of the year have been heavily dominated by the core local investors, but we are now witnessing early signs that some more opportunistic cross-border buyers are starting to take an active interest. Another reassuring trend is the growing number of assets being put on the market for example, Prime Commercial Properties' announcement of their intention to sell their German shopping centre portfolio. German investment activity is therefore likely to pick-up further later this year and into 2010."
John Welham, Head of European Retail Investment, said: "Current trends in pricing are particularly interesting, with values of some very good quality stock stabilising in many markets and even rising in a few. Strong investor demand remains heavily concentrated on good quality retail and the weight of equity allocated for retail property investment should continue putting downward pressure on yields. However, a lack of quality product is starting to see investor interest shift further out and into good secondary locations in order to realise the investment requirement. This trend is already evident in the UK and is now spreading to France, which should translate into an increased level of retail investment after the very quiet third quarter."