According to research conducted by Cushman & Wakefield, the retail sector recorded the fastest growth in Europe’s commercial property market last year, with investment rising to a total of €67.3bn. Retail property markets enjoyed a buoyant 2015, with volumes ahead by 28% in comparison to the previous 12 months and values rising 8%, due to strong growth in yields but also in prime rents in the region’s top cities.
Germany enjoyed a record year in 2015, doubling trade volumes to overtake the UK and become Europe’s busiest retail investment market. The confluence of better supply and demand and its critically improved supply of larger assets and portfolios drove a 103% increase in trading to €17.95bn.
Markus Schmitt-Habersack, chairman of the Cushman & Wakefield German capital markets team, said: “While London may be the leading city for cross border investors, Germany offers greater depth, with seven cities in the top 20 for cross border buyers in 2015. The German consumer is set to remain on the front foot in 2016 and retail sales are expected to steadily edge ahead. The translation of this into rental growth however, may prove slow, given the cost sensitivity of retailers, and there is a clear need for investors to focus on quality retail locations and areas where income gains can be secured via active management.”
The strong demand for core retail was underlined by increased activity in the Nordics, with volumes rising 158%. In contrast, retail markets in Spain and Italy were somewhat overshadowed by increased interest in their office sectors, but demand in the region is still strong, with Portugal’s retail volumes rising 194%. Benelux and central Europe also experienced increased activity, with volumes rising 237% in Belgium, 244% in Poland and 103% in the Czech Republic.
Cushman & Wakefield’s research outlines how economic trends have been favourable for the retail sector due to a return of modest but real income growth as well as an improving labour market. Despite the headwinds facing the global market, this is likely to continue to benefit the sector in 2016. High streets have been the lead performer, although growth has become more diverse as retailers react to supply, operating costs, and the impact of e-tailing and click and collect.
David Hutchings, head of EMEA investment strategy at Cushman & Wakefield, said: “Against a backdrop of a healthy occupier market alongside a focus on the best space and cities, pricing will polarise this year, with prime yields having further to fall but weaker tiers of the market remaining out of favour. Markets such as Italy and Poland look set for a strong year but core markets will remain in highest demand in what looks set to be an uncertain and volatile global economy.
“With increasing levels of Asian capital looking towards the retail sector, prime retail units and centres in the best cities will see further strong demand, with Germany and the Nordics set to post a new high, underpinning the 5% growth forecast for the region overall, with Europe’s turnover in 2016 set to hit €70.5bn.”
