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Prime retail investment rising despite lower consumption

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According to Savills, the total volume of retail deals recorded in its survey for Q1 13 is up 25% to €4.7bn compared to Q1 12 with UK, Germany and France capturing the most activity at 37%, 40% and 11% respectively.

High street deals have increased dramatically from 14% to 20% comparing Q1 12 to Q1 13 and have seen a significant shift in prime high street retail yields which are now just 15 bps above 2007 levels at 4.8% with lowest achievable yields recorded in London (3.0%) and Munich (3.5%), and the highest in Lisbon (7.5%) and Athens (6.75%).
The international real estate advisor suggests that the drop in prime high street yields, which started in Q110 and is as much as 77 bps, is further evidence that investors have a healthy appetite for good quality retail assets.  The rising demand for high street retail is also reflected in high rental growth. Prime high street rents in London and Vienna have increased by more than 12% pa on average over the past five years but this is not the case for the whole of Europe.  Indeed, rents in Dublin and Athens have declined by 11% over the same time period.

Danny Kinnoch of Savills European Investment says: “The trend for prime high street properties, especially in core markets, can be attributed to continued strong demand from retailers for the best located units, hence the rental growth. There is particular investor demand for units in established top end, luxury retail stretches. Such product suits cash rich private investors who are able to buy in this challenging debt market.”
In the shopping centre markets, Savills reports that prime yields have remained quite stable, in the region of 6%. Whilst most markets experienced an overall correction during 2008 and 2009, opposite trends have since been observed with prime yields hardening by 50 bp to 150 bp in most core markets, and softening by 25 to 175 bp in the peripheral markets.
Eri Mitsostergiou, director of Savills European research, says: “Strong price corrections in the periphery markets may offer opportunities but the quality of scheme is very important.  We cannot dismiss the fact that unemployment is at record levels in some of these regions and so the top schemes are considered more defensive. “As for the core markets, it might be a good time to start moving up the yield curve and look into ‘off prime’ product with good catchment characteristics and potential.”

 Market in Minutes Europe_May 13 [266.04 kB]

Source: Savills

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