Ireland, Poland and Italy are all emerging as new favourite retail markets in Europe, as commercial property investors shift their attention to non-core markets.
Retail property remains one of the most popular forms of commercial property for investors, with investment accounting for 24.4 per cent of activity recorded by Savills in the first three quarters of 2016, down from 2015 (26.7 per cent), but higher than the long-term average of 23.4 per cent. Indeed, volume of investment was 40 per cent higher than the 10-year average recorded by Savills in 2016, with only office property performing better.
Total turnover dropped in the two largest markets: the UK (down 18 per cent) and Germany (down 46 per cent). Instead, investors shifted attention to markets such as Italy, Poland and Ireland, with the countries seeing investment jump 119 per cent to €1.8bn, 126 per cent to €1.4bn and 223 per cent €1.46bn respectively.
“The polarisation between prime and secondary locations remains a market characteristic, with lower demand and stable or negative rental growth trends,” says Savills’ latest report.
Indeed, demand for the best units is reflected in the higher rents (yoy) commanded in a number of prime high street and shopping centre locations, particularly in cities where international retailers are expanding, such as Brussels (8 per cent – high street), Copenhagen (11 per cent – shopping centre), Amsterdam (2 per cent – high street), Stockholm (2 per cent – shopping centres), and second tier cities where retail rents have not yet fully recovered such as Athens (12 per cent) and Dublin (3 per cent).
The figures arrive at a time of ongoing shift for the retail property world, as online sales grow 12 per cent year-on-year in Europe. Nonetheless, the majority of retail sales still takes place in physical stores, says Savills, with e-commerce accounting for less than 10 per cent of all retail sales.
The total investment into the retail sector over the period Q1-Q3 2016 was about €33.3bn in the 15 markets monitored by Savills, down 28 per cent from 2015, although last year was a record year, underpinned by numerous mega deals and large portfolios.
“Lower supply of similar large-scale assets and the strategic decision of several investors to hold on to prime assets has restricted transaction activity, despite strong investor demand,” comments Savills.
London leads European retail target markets
22nd November 2016
London is leading Europe’s target markets for retail brands looking to expand internationally. According to Savills, the UK capital is a key global gateway city of London, ranking just above Paris as the two top prime retail destinations on the continent. Amsterdam, Barcelona and Warsaw complete the top five, with Munich, Rome, Madrid, Dublin and Milan rounding out the top 10.
The traditional thinking dictates that the higher the occupational cost, the greater the sales revenue associated with that particular market and, in turn, the demand for space. However, Savills’ rankings do not just compare the cost of operating and occupying a store in the city, but take into account other factors, such as retail sales, demographics, tourists flows and spend and appeal to international shoppers.
Indeed, Paris and London are the most expensive markets in Europe, in terms of € per sqm per annum costs, excluding staff. Nonetheless, they are the top two destinations overall, benefitting significantly from their “sheer size and international visitor appeal”.
“Where a disconnect has developed between retail sales potential and store costs, these markets could prove more attractive to expanding retailers as it suggests the profitability of these locations could be greater,” adds the report. “It is this disconnect, amongst other features, that helped place London above Paris in the Index and it also explains why Amsterdam ranked third, despite having relatively small retail and visitor markets compared to its peers.”Google+