Savills: London and Paris see yields move in as retail shows signs of stabilizing across Europe (EU)

The UK has seen signs of prime yield stabilization in the retail sector with further hardening forecast, according to international real estate advisor Savills. The firm reports that prime London shopping centers and retail parks have, between Q2 09 and Q2 10, seen 125 bp inward yield shift, while Paris has recorded 75 bp in shopping centers and 50 bp in retail parks. In addition, Madrid, Barcelona and Warsaw have also seen 25 bp yield hardening for shopping centers.

The UK has seen signs of prime yield stabilization in the retail sector with further hardening forecast.

The research, which looks at shopping center and retail park performance across 27 EU locations, states that this investment appetite is due to a renewed confidence in the sector. Savills reports that while consumer confidence remains negative across Europe, it has improved significantly comparative to the historic lows of March 2009, and retail trade recorded in June 2010 showed an increase of 0.5% year on year. Furthermore with a limited shopping center development pipeline moving forward, demand and supply are set to remain balanced, in the prime segment of the market.

Eri Mitsostergiou of Savills research says: "The impact of the negative economic sentiment is easing and retail activity is finding its equilibrium at new levels of demand and supply. The prime segment is broadly balanced, thus rents are stabilizing in most locations. Prime retail assets are becoming the preferred investor target in the larger markets, and prime yields are hardening once again."

In terms of rents, Savills reports that in about 75% of locations shopping center and retail warehousing rents have stabilized compared to last year and in the remaining locations they continue to fall. Average annual rental growth is -3.2% for good quality shopping centers as retailers focus on network optimization.

Source: Savills

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