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Buoyant European retail sector to attract €70.5bn investment in 2016

Soren Rodian Olsen

Soren Rodian Olsen

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The full report

  • Retail was the fastest growing sector of the commercial property market in Europe last year, with larger assets and portfolios driving volumes higher
  • German trading volumes doubled in 2015 to move past the UK, with cross border activity set to drive Germany and Nordics to new highs in 2016
  • Increasing levels of Asian capital targeting European retail, with prime units and centres in core cities attracting most demand

The retail sector recorded the fastest growth in Europe’s commercial property market last year, with investment rising to a total of €67.3 billion, according to a research report out today from Cushman & Wakefield.

Retail property markets enjoyed a buoyant 2015, with volumes ahead by 28% compared to the previous 12 months and values leaping 8%, due to strong growth driven by yield fall but also growth in prime rents in the region’s top cities.

Germany enjoyed a record year in 2015, doubling trade volumes to move past the UK and become the busiest retail investment market in Europe. The confluence of better supply and demand and its critically improved supply of larger assets and portfolios, drove a 103% increase in trading to €17.95 billion.

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.

The research report 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 €70.5 billion.”

Anthony Selman, Partner, CE Capital Markets at Cushman & Wakefield in Poland, said: “Following a record €2.2 billion in retail investments in 2015 Poland will continue to consolidate its place as the alternative to the Western European investment markets. New sources of overseas capital will drive competition for retail assets across the retail spectrum from regional capitals to secondary and tertiary cities.”