According to Jones Lang LaSalle research, retail real estate transaction volumes in Continental Europe totalled 1.5 bln in the fourth quarter just over half the Q3 volume (2.9 bln). The total volume of transactions in 2008 was 12.4 bln, some 56% down on the previous year (28.2 bln), a significant fall but only slightly lower than the 2005 total volume of 14.7 bln.
Jeremy Eddy, a Director in the European Retail Capital Markets team, said: "Investors have been adopting a "wait and see" strategy, due to the high cost and/or lack of access to finance, and the anticipation that prices have further to fall. The low level of activity is likely to persist in the first half of 2009 but markets are moving closer to fair value and by mid year more purchasers are expected to take advantage of the revised pricing. Buyers will continue to focus on the best assets, and for the first time, there is likely to be significant opportunities to access prime product as developers look to raise cash and bring LTVs to more manageable levels. A major upturn in investment activity will of course be dependent on an increase in the liquidity in the debt markets."
The significant decline in investment activity in recent months has resulted from the ongoing difficulty in accessing finance, a worsening economic outlook and rising yields. Nevertheless, there were still 40 deals completed in Q4 (66 in Q3), including three over 100 million (30 deals over £100 m in 2008) the largest was the sale and leaseback of 12 Eroski Hypermarkets in Spain to UK investor Topland for 361 million.
Germany remained the prime area of activity for investors last year, with a total volume of 2.5bn transacted in 2008, representing 20% of total continental investment in retail real estate compared to a 26% share in 2007. Spain (1.4bn) is some way behind in second place, followed by Finland (1.3 bn) and Russia (784 million). Cross border activity accounted for two thirds of the total transaction volume but was noticeably down on the previous year (76%), with investors increasingly likely to buy in their local markets, where they are best placed to judge market fundamentals.
Jeremy Eddy continued: "While the sharp outwards movement in UK yields arguably presents good opportunities for investors in 2009, the lower yields in much of continental Europe reflect a more robust retail sector, with continued occupier demand for prime retail space, and like-for-like retail sales holding up across the board. Likewise net income growth for major shopping center owners in continental Europe has also remained relatively robust. This will underpin the expected increase in the flow of transactions in Continental Europe in the second half of the year, albeit below the levels of the last three years."
Shopping centers were the prime target for investors in 2008, accounting for 55% of the total volume transacted. However the defensive qualities of retail warehousing have proved popular, particularly in the first half of the year. Retail parks accounted for 20% of transaction volumes in 2008, compared with just 9% in 2007. After a slow start, activity in the supermarket sector picked up towards the end of the year with transaction volumes representing 11% of the total traded in 2008.
Jeremy Eddy concluded: "Investors are increasingly focused on real estate that has strong defensive qualities, both in terms of market, location, scale, tenant covenant and quality. To this end, we believe that shopping centres, particularly those in the more mature and larger western European economies will remain a key target for the investment community in 2009. This trend was already evident last year, with Western Europe's proportion of total transaction volumes rising to 79%."