With a total of € 44.2bn invested over the last 12 months, investment in retail assets in Europe continues to rally. This significant increase of +20% is higher than for offices (+10%) or logistics (+17%).
Investment in retail warehousing in Europe (France, Germany, UK, Italy, Spain and Poland) stands at € 13.3bn over a rolling year, down slightly by -4.5% compared to the previous year. Nevertheless, this asset category accounts for the lion's share of investment in retail property (43%).
The high street segment (France, Germany, UK, Italy and Spain) enjoyed a strong year-on-year trend with investment of € 10.4bn, up 74% vs the previous year.
This was higher than 2019 (+3%) and 2020 (+5%). The strong momentum was largely driven by a few major deals that lifted the total amount.
Lastly, shopping centres (France, Germany, UK, Italy, Spain and Poland) have benefited from renewed investor interest compared to last year, with a +157% increase in investment. The total of € 7.1bn invested is the highest since 2018.
“The current economic climate could slow investment in Europe, with the withdrawal from the market of some assets (as with the O'Parinor shopping centre in Paris and the Islazul shopping centre in Madrid), a wait-and-see approach by investors and financing difficulties due to rising interest rates. However, some segments, such as high street and shopping centres, may prove very busy in 2023 due to some players' need for liquidity and the possibility of purchasing for others, particularly those investing in equity, seeking the best market opportunities”, remarks Patrick Delcol, Head of Retail Europe for BNP Paribas Real Estate.
First signs of prime yield expansion in Europe
Prime retail yields started to expand in Q3 2022, and this trend could continue until the end of 2023. This rise is less pronounced than for other asset categories (office, logistics), as there has already been an adjustment since 2020, with the health crisis.
The high street prime yield is still the lowest, despite expansion in some countries. This is mainly due to transactions in the luxury sector, which continue to squeeze the prime yield but do not fully reflect the current market for high street premises.
Prime yields for retail warehousing are still very appealing throughout Europe and continue to attract investors.
Prime yields for shopping centres gradually eased in 2020 and 2021, before stabilising in H1 2022. They have continued to rise in Q3 2022, and now offer opportunistic deals for investors.
Occupier market: positive signs as tourism picks up and new retailers open, but retail sales are likely to fall
International tourism performed strongly in 2022, with Europe especially leading the revival. Tourism flows in European countries reached 74% of their 2019 levels for the January-July period. They were boosted by strong inter-regional demand and by American travellers taking advantage of the strong dollar. In Europe, the Southern/Mediterranean region has recovered the fastest (-6% compared to July 2019). Meanwhile, footfall on major European thoroughfares has been matching or exceeding pre-Covid levels in many cities (+21% for Paris/Champs-Elysées, +30% on average in Rome and Milan in September). Only the United Kingdom still has substantially lower levels.
It was also an active year for expansion by some retailers, particularly in the discount and mid/high-end segments (fashion, beauty, home). Food discounters (Aldi, Lidl) and more generalist players like Action have opened in several European countries this year. Premium retailers have also moved into new premises: Lacoste in Berlin, Scotch&Soda in Copenhagen and London, The Kooples and Sandro on the Champs-Elysées in Paris, Aesop in Madrid and London and Kave Home in France, Croatia, Spain, the Netherlands, Italy and Slovenia. The appeal of shopping centres is intact, as shown by the opening of Jott in Lisbon, Geneva, Barcelona and Toulouse, and Lacoste in London.
“Despite rising footfall trends and new store openings, retail sales could decline in 2023. This is largely due to the slide in consumer purchasing power and the fall in the household confidence index. Households could refocus their spending on essentials and cut back on impulse/non-essential purchases. So, while sales growth forecasts are positive in 2022 for Europe (+0.4%), they are expected to contract slightly in 2023 (-0.7%). Meanwhile, quite apart from the current economic situation, these forecasts are also the result of a catch-up effect for certain countries, where sales growth soared in 2021, sometimes faster than GDP”, observes Patrick Delcol.
E-commerce penetration: online sales continue to grow, but the market is gradually maturing for Northern countries
Northern and Western European countries have a higher volume of online sales per capita (e.g. a British person buys around €2,500 worth of goods online per year while a Portuguese person buys around €300), but show lower growth rates as they mature. The latest results from Amazon confirm this trend (coupled with the weak economy): sales are still rising, but growth is anaemic, with lacklustre forecasts. Southern and Central European countries have higher expansion potential at this stage, and therefore higher actual and prospective growth rates. “A rebalancing between physical and online sales is essential for retailers to remain viable. These complementary channels must be mutually integrated, via efficient click & collect networks as well as innovative and smoother shopping experiences. The physical store is also essential; some retailers are using 'rightsizing' strategies to make it central to consumers' expectations. However, strategies differ from business to business. Fashion retailers are reducing the number of shops by closing smaller, less profitable ones in favour of larger locations where innovative concepts can be more easily deployed. Conversely, DIY stores are seeking to reduce the size of their shops, so that they can move into town centres, closer to consumers looking for speed and convenience”, concludes Patrick Delcol.