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European retail real estate investment increases 34%

The majority of investment activity remained focused on the UK and Germany, accounting for 56% of total volumes over the quarter, while transactions in Sweden totalled €572 million as the region continued to attract significant interest. Sweden has already surpassed transaction volumes levels recorded for the entirety of 2010, exceeding €896 million in the first half of this year alone.

A number of growth markets saw increased activity over the quarter with volumes in Russia at €432 million and Poland at €332 million boosted by some key transactions, most notably the €278 million purchase of Gorbushkin Dvor and Filion Shopping Centre in Moscow by MTZ Rubin and the €171 million acquisition of Promenada Shopping Centre, Warsaw by Atrium.
‘Current investor demand remains focused on the core European markets of France and Germany but we also expect Poland and CEE to witness significant investment volumes by the year end. Investors driven by higher returns are focusing on the growth markets of Russia and Turkey which provide prospects for rental and turnover growth as well as potential for yield compression,’ said Jeremy Eddy, head of EMEA Retail Capital Markets at Jones Lang LaSalle.

‘Northern European markets that offer attractive fundamentals are however constrained by stock availability. It remains true across the majority of Europe that there is significant equity available for high quality assets and we expect the trend we identified of equity partnering expertise to accelerate further,’ he added.

Shopping centres remained the most sought after asset type, accounting for 59% of total retail volumes traded over the quarter. This trend was less pronounced in the UK where 29 deals for retail warehouses completed over the quarter with an average deal size of €21 million. Appetite for supermarkets remained strong as a number of significant transactions completed in quarter two including the purchase of a portfolio of four stores in Sweden by Unibail-Rodamco for €266 million and sale and leaseback of two Tesco supermarkets in the UK.

‘In quarter two of 2011 we observed continued strong investors’ appetite for retail in CEE. Poland is the most sought after country followed by Czech Republic. Notably one large shopping centre deal, Olympia in Brno, has been most recently acquired by joint venture of ECE and Rockspring being the first transaction for Q3 2011. We are also aware of number of retail properties currently under exclusivity with expected closings in quarter three and quarter four of 2011,’ explained Agata Sekuła, head of CEE Retail Investment.

According to James Brown, head of EMEA Retail Research at Jones Lang LaSalle despite a backdrop of a volatile European economic recovery, investment volumes in the first half of this year have continued to improve year on year. ‘Although a handful of significant deals have certainly flattered the numbers, the second quarter has been characterised by a continued growth in the geography of transactions. We enter the third quarter with significant momentum and pipeline transactions which have or will close by the end of September,’ he said.

The research considers all investment sales of shopping centres, retail warehouses and factory outlet centres in Europe.  It excludes the high street and any investment deal less than US$5 million in value.