Direct retail real estate investment in continental Europe was up by 85% in the second quarter 2009, compared to the first quarter of the year, according to new research from Jones Lang LaSalle.
This has been largely driven by an increase in lot size rather than number of deals, 33 deals in Q1 compared to 38 deals in Q2. The transaction volume was circa 2 bln. in Q2 2009, compared to 1 bln. in Q1, giving a total of 3 bln. in the first half of the year. This is comparable to the volume transacted in the same period in 2004. However H1 2009 volumes overall were 63% down on the same period in 2008, despite a number of major deals taking place, including nine deals over 100m in H1 2009.
Jeremy Eddy, lead director of European retail capital markets at Jones Lang LaSalle said: "One common theme linking most of the major retail transactions in 2009 to date has been vendor or structured financing that has been available to the purchaser. With debt remaining severely restricted across most European markets, the availability of vendor financing has allowed many of these larger deals to take place at the levels achieved."
Looking ahead he continued: "The prospects for retail investment in continental Europe in the second half of 2009 remain cautious. Transactions initiated by distress are not prevalent as yet and mid year valuations have not resulted in significant liquidity issues. We are aware however of several significant transactions that have recently completed or are close to exchange, particularly in Germany, and we believe that there will continue to be strong interest in prime quality stock."
Similar to the first quarter, Western Europe accounted for most of the retail investment volume (95%) with very limited activity in CEE, as investors focus primarily on domestic and core European markets.
The big five markets have dominated in the first half, as predicted by Jones Lang LaSalle in its 'Big Five' Report issued at MAPIC in November 2008. France and Spain saw their first transactions of 2009 after none in the first quarter and became the most active markets in Q2, with France transacting 693 million and Spain transacting 360 million. Notable transactions included Pramerica's acquisition of 'Le 31' shopping center in Lille from Foruminvest for circa 160 million and Orion's acquisition of Plenilunio Park in Madrid from Banif for circa 235 million, the largest single asset transaction completed so far in continental Europe during 2009.
Shopping centers in Continental Europe made up the lion's share of retail transactions in H1 2009 (2.0 bln. and 69% of volume), up considerably on the previous quarter.
The high street remains very attractive in all countries due to lot size and income security. The sale and leaseback market is also experiencing increased activity, particularly for food based retail premises, driven both by retailers' requirements for capital and investors' interest in long term and secure income streams. The retail warehousing sector has been hit hard in H1 2009, representing only 13% of the total volume, compared to 30% in H1 2008.
Funds and institutions have been the most active purchasers, accounting for approximately 40% of total volume and it is clear that the persisting problems in the debt market are making it difficult for leveraged buyers.
Meanwhile retail investment in the UK in the first half of 2009 was 1.8 bln. This was principally transacted during Q1; Q2 saw fewer deals with very little stock on the market. Yields for prime stock are stabilizing and whilst demand and sentiment from investors has improved, tenant default and rental decline is still impacting values, particularly in the secondary market. Equity buyers are dominating as the debt market remains very challenging. Additionally a premium is being paid for long dated secure income.