European retail is becoming cheaper and attracting opportunistic investor interest

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 advisor.

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.”

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