Strong start to the year for the European real estate property investment market

The year has started strongly for the European retail real estate investment market with €5.1 billion of activity in the first quarter of  2012, up nearly 60% in comparison with the same period last year.

According to research by Jones Lang LaSalle this was driven by growth in shopping centre investment, which rose by 85% year on year to almost €4 billion. The property firm said this demonstrates the on going demand for this type of product.

The UK was the most liquid market, accounting for close to 40% of European retail investment activity. While this was due in part to a number of good quality centres coming onto the market, appetite for best secondary also improved as a combination of the continued lack of prime stock and competitive pricing began to push investors up the risk curve.

Key deals that completed included the purchase by F&C REIT Asset Management of the Grosvenor Shopping Centre Fund for £254 million and Intu Properties’ acquisition of Midsummer Place in Milton Keynes from Legal & General for a price of £250 million, reflecting a yield of 5.1%.

‘While true regional prime shopping centres and Greater London remain the key targets for Sovereign Wealth and REITs respectively, the demand driver for good dominant secondary is the global view that UK retail has adjusted first to both obsolescence and the internet,’ said Adrian Peachey, head of UK Retail Capital Markets at Jones Lang LaSalle.
‘On a selective basis it is therefore re-priced from an occupier perspective. Purchasers are able to price in upsides in terms of improved loan arrangements, rental growth, yield compression and value recovery, which realistically support an improvement in sentiment. This could sharpen yields by 25 to 50 bps,’ he added.

A lack of prime supply constrained investment volumes in the French and German markets and consequently, alongside the UK it was the Nordics and Russia that recorded the highest investment volumes in the first quarter of 2013.

The quarter saw the sale of Rosengårdcenteret, the second largest shopping centre in Denmark, which was acquired by ECE for around €400 million, marking their entrance into the Scandinavian market. In Russia, activity was boosted by the completion of the Metropolis deal in Moscow.

‘Russia is benefitting from the number of large, high quality assets coming onto the market with deals such as Metropolis demonstrating the attractiveness of the Russian growth story to non domestic investors,’ said Thomas Devonshire-Griffin, head of Russian Capital Markets.