European retail property investment reaches €4.6 billion

The retail property investment market in Europe totaled €4.6 billion in Q1 2012

Investment turnover in the European retail property market slowed in the first quarter of 2012 (Q1 2012) with few large transactions taking place.

However, investor sentiment remains buoyant and activity is expected increase from Q2 2012 onwards, according to the latest report from global real estate adviser CBRE.

The retail property investment market in Europe totaled €4.6 billion in Q1 2012, which represents a 64% fall in activity compared with the last quarter of 2011 and less than a half of the quarterly average from the last two years of €9.4 billion.

Activity slowed across all geographies, bringing the retail share of overall European commercial property investment to under 20%. While investor sentiment remains particularly buoyant in Germany, activity in Q1 2012 still fell to €1.35 billion, well below the last two year quarterly average of €2.4 billion. 

Notably, there was very little (just under €200 million) retail investment in Central and Eastern Europe (CEE) – with lack of finance and suitable product thought to contribute to the subdued transaction level. 

Banks and other lenders are potential source of new product. In the light of further deterioration in lending sentiment and new banking regulations, lenders are becoming more active in their deleveraging strategies. There is more product coming onto the market – in most cases through ‘encouraged by the bank’ sales, carried out by the original borrower. This offers significant opportunity to access product, especially with respect to value-add and more secondary assets that offer higher return potential. 

John Welham, Head of European Retail Investment, CBRE, commented: “First quarter figures show lower levels of investment activity across Europe, with retail falling below €5 billion. However, with pressure to sell increasing for a number of investor groups, we expect European retail investment activity to pick up again from Q2 2012 onwards.” 

The fall in retail investment took place despite the strong growth in investor demand for the sector over the last couple of years and similar projections going forward. According to the latest CBRE and INREV investor intentions surveys retail features as a leading investor choice for 2012 and we expect this to be reflected in investment activity levels from Q2 2012 onwards.

Iryna Pylypchuk, Associate Director, EMEA Research, CBRE, commented: “Unlike in 2011, we have seen a more cautious start to the year, with few large deals so far in 2012. 

“The lack of core product, a tight lending market, and the persistent gap in buyer and seller expectations when pricing secondary assets were fundamental reasons behind weak first quarter results. Nevertheless, investor sentiment towards direct real estate investment and the retail sector in particular remains buoyant.”

Konstantin Lysenko, Director, Capital Markets, CBRE, Russia said: “After considerable growth of retail real estate investment deals in Russia in 2010 - 2011 main intrigue is the possibility of the active expansion of institutional investment deals into the regional markets.

“We already see that such high quality retail assets as ‘Karnaval’ located in Chekhov and ‘Victory Plaza’ located in Ryazan are coming to the investment market. Deals with these high quality assets at fair price levels will demonstrate to the Russian and international players that liquidity and yield compression are back to the agenda of regional retail investment. 

“Besides this new dynamics we expect will motivate the kick-off of new development cycle for construction of modern quality retail schemes in the cities with populations of 300,000 to 700,000 people. In three to five years’ time this trend will ensure both the expansion of retail chains and considerable growth of the volume of retail real estate investment in Russia.”