According to Savills, the European retail sector is increasingly looking more attractive to opportunistic investors. In the UK, there was a rise in opportunistic interest in the sector in the last quarter, supported by significant yield correction. In Poland, secondary retail assets are being traded at double-digit yields.
In a world where high yields are increasingly hard to find, whether in real estate or other sectors, good UK shopping centres where there is a credible story around tenant demand and consumer need are starting to look attractive again. Prime achievable yields for shopping centres in Q2 were at 6.75% according to the international real estate advisory.
Against the general trend of falling investment in retail, investors are showing confidence in the food and convenience segments.
Jörg Krechky, Chairman European Retail Investment Board, Savills, says: “Assets related to the food sector, such as discounters, supermarket anchored retail schemes and, to a lesser extent, hypermarkets have been attracting multiple bids and yields are moving in. The stability and length of income streams make this segment desirable especially for investors with long-term liabilities. The sector was traditionally capturing 5-6% of total retail investment, but this year soared to 23%.”
Eri Mitsostergiou, director, Savills European research, says: “We expect that in the coming quarters there may be a rise of opportunistic interest in the European retail segments that show significant repricing. Given the market context, understanding and selecting the ‘right’ retail stock is fundamental. Currently the factors that drive prices down are structural, which may allow some assets to adapt to new consumer habits, while others may need to change use altogether. Strong recovery in consumer spending may support some optimism for retailer performance and covenants in some locations and resilient assets. This may lead to further polarisation between prime and secondary pricing. In the long term we do not expect the recovery of retail yields to be as strong as in the previous cycle.”
Michał Stępień, Associate, Investment, Savills Poland, says: “Subsequent lockdowns and pandemic related restrictions accelerated the e-commerce growth and the ongoing wider transformation of retail that has been affecting retail investment since 2016 Europewide (in Poland since 2019) and amplified polarization between ‘prime’ and ‘secondary’. This is reflected in the investor activity in Poland, which in H1 2021 in the retail sector did not exceed €300 million and constituted less than 15% of total investment, reflecting approximately 40% drop year-on-year. Investor activity shifted from the retail sector towards logistics, significantly limiting the pool of buyers targeting retail. This is still a live process and activity in the prime end of the market is nearly non-existent, as the future is still uncertain and even the dominant centres need some time to adjust and stabilize. With the softening of prime yields by ca. 75 – 100 bps, it is also not the most comfortable time for vendors to divest. On the other hand, it is the time of opportunities, attracting buyers seeking high-yielding assets and/or value-add potential, especially in the long-term, as the gap between prime and secondary grew up to 350 bps, which resulted in secondary assets being traded at double-digit yields. We believe this will continue, with the consequences of the pandemic to unfold for a long time to come, however, once the sector recovers, driven by the synergy of traditional retail and on-line, retail investment will be back on track.”
