JLL: Retail real estate investment down in Continental Europe in Q1 (EUR)

Direct retail real estate investment in Continental Europe totalled €980 million in the first quarter of 2009, 37% down on the previous quarter (€1.5 bln.), according to new research from Jones Lang LaSalle. Western Europe accounted for the vast majority (89%) of transaction volumes as European investors are increasingly focusing on their home markets. The proportion of retail investment volume accounted for by domestic investors has increased from one third in 2008 to over half in Q1 2009.

Jeremy Eddy, Director European Retail Capital Markets, Jones Lang LaSalle, said: "Investors continue with their 'wait and see' strategies in Continental Europe, with most markets seeing some fall in prices in the first quarter. At the same time, the high cost and lack of access to finance continues to restrict market liquidity, particularly for larger transactions. There is demand for prime product in the best locations and low vacancy rates in many top schemes provide the secure long-term income that investors seek."

Italy and Germany were the most active markets in Continental Europe, accounting for 31% and 28% respectively of total transaction volumes. In Italy two deals over €100 million were completed: the Barberino Designer Outlet centre and the Centro Rondo shopping center in Monza, while Germany was the most active market in terms of the number deals – nine completed in Q1. Investment into Central and Eastern Europe was quiet, due in part to the lack of domestic investors in these markets.

Shopping centers were the prime target for investors but accounted for just over one third of the total volume transacted, compared with 55% in 2008, reflecting the lack of prime product on the market and the difficulty in raising finance for funding larger transactions. Nevertheless, shopping centers with strong defensive qualities in terms of location, scale, tenant covenant and quality remain a key target for investors in 2009. Factory outlet centers, accounting for 26% of transaction volumes, were also a target in Q1, as Henderson and Neinver consolidated their outlet portfolios.

In comparison, transaction volumes in the UK totaled of €1.3 billion in the first quarter – up 54% on Q4 2008, although the sale of a 50% stake in the Meadowhall shopping center accounted for almost half (48%) of this volume. Investor interest in the UK market is increasing following a sharp outward movement in yields, but this re-pricing does reflect on-going concern about rising vacancy rates even in prime locations.

Turning back to Continental Europe, Ferenc Furulyas, Head of Capital Markets Hungary, concluded: "We expect that as the year progresses and buyer and seller expectations are increasingly aligned and the market moves towards fair value that transactions will be forthcoming. Two major drivers to this will be the realization of valuation markdowns and a restricted return of liquidity from the banking sector."

Source: Jones Lang LaSalle

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