European regional centres are outstripping the traditionally dominant cities on the retail market. More than 100 regional centres have higher sales indexes and well over 150 have higher centrality indexes than major cities examined in Triuva’s study of the general conditions for retail in 548 European cities.
On review of the study’s results, the European investment manager has flagged purchases of retail properties in well-positioned secondary cities as a defensive and comparatively high-yield investment.
“International property investors in particular often focus on the major European retail locations such as Paris, London and Milan,” explained Dr Georg Pfleiderer, head of research at Triuva. “In doing so, they all too often overlook the more than five hundred regional centres with over 100,000 inhabitants – just think of Lyon or Salzburg, for example.
“Sales in regional centres averaged €9.5bn in the past decade, around twice as much as in the major cities. European regional centres’ status as real hidden champions is reflected, among other things, in the fact that prime yields are still a good 40 basis points higher than in 2007. The spread compared to the major cities is as high as 140 basis points,” added Dr Georg Pfleiderer.
Triuva also identified a further advantage in the low volatility of retail rents, which are displaying a positive trend on average. However, there are much more significant differences in the rent development than for major cities. For example, an increase in prime rents of 10% per year in Innsbruck compares to a decrease of 4% in Catania, Italy. “This means that it is particularly important to make a precise analysis of potential locations when investing in regional centres,” Pfleiderer continued.
As part of the study, Triuva analysed the purchasing power and centrality indexes and the demographic development prospects of the cities examined. “The scoring model developed in this way provides an overview of the fundamental conditions from a top-down view and forms the basis for identifying the most attractive cities, but is no substitute for a bottom-up location analysis. For this reason, analysis of the property’s parameters and local expertise play an important role before any investment decision.”
Triuva will incorporate the findings of the study in the investment strategy for a new fund product investing in retail properties within Europe.
