JLL: European retail real estate investment dominated by Big Five in Q3 2009 (EUR)

Transaction volumes in retail investment in the UK and continental Europe over the first three quarters of 2009 totalled circa €8.1bn, just over half the level seen in the same period in 2008 (€15.6bn), according to new research from Jones Lang LaSalle.

In continental Europe, volumes totaled €1.5 bln. in Q3 2009, down circa 25% on the previous quarter which saw about €1.9 bln. transact. The total volume in Continental Europe in the first three quarters of 2009 was just over €4.5 bln., around 40% of the volume transacted in the same period in 2008 (€10.9 bln.), with the average lot size remaining the same at approximately €44 million. Just over 100 deals have completed in Q1-Q3, including 14 over €100 million.

As in Q1, Germany and Italy were the most active markets in continental Europe, accounting for 63% of total volume transacted in Q3; two of the largest deals over the summer were both transacted in Germany by German purchasers: developer ECE sold a stake in the Thier-Gelände shopping center in Dortmund to the German fund manager Hamburg Trust (and private investors) for €225 million and Union Investment acquired the Mercado shopping center in Hamburg from Pirelli Real Estate and Morgan Stanley Real Estate for €164 million. A number of smaller deals have transacted in the Netherlands during Q3, totaling circa €145 million, with a number of property companies and institutions disposing of certain non-core assets to private investors.

The proportion of shopping center investment continued to increase in Continental Europe during the course of 2009, making up 72% of total volume in Q1-Q3, compared to 60% during the same period in 2008. This is due both to a lack of quality retail warehousing stock and a lack of debt available on this type of product leading to retail warehousing volumes in Q1-Q3 falling circa 80% year on year.

Institutional buyers and funds continue to be the most active buyers in Continental Europe accounting for over 40% of total volume in Q3, and these are primarily German buyers. The persisting restrictions in the debt market continue to make it more difficult for leveraged buyers to find the right opportunities.

Jeremy Eddy, Director, Head of European Retail Capital Markets said "The decline in volumes in the third quarter is contrary to an increase in investor sentiment over the same period. The lack of deals closing between July and September reflects the low initiation of deals in the first half of the year. We expect an increase in closings in the final quarter and estimate a year end total of circa €7-8 billion in continental Europe".

In the UK, the first three quarters of 2009 have seen a total of €3.6 bln. transact in 75 deals, compared to €4.7 bln. during the same period in 2008 in 76 transactions, the average lot size remaining stable, whilst €1.1 bln. was transacted in the third quarter.

Adrian Peachey, Director, Head of UK Retail Capital Markets commented "The third quarter has seen an increasing appetite for the UK retail sector from UK and global investors but a substantial shortage of quality investment product, with a number of potential sales pulled from the market by hesitant vendors. This has led to a surge in pricing for defensive stock in particular, which in many cases continue to avoid the widespread issues of rental decline and tenant default seen in more secondary assets. Whilst equity buyers dominate, fresh debt (albeit on cautious terms) is more readily available than has been the case in the previous 12 months."

Source: JLL

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