European retail investment grows in Q3 2012 despite lack of product

Highest quarterly total reported in 2012 as market grows to €7.1 billion

European retail property investment grew to €7.1 billion in the third quarter of 2012 (Q3 2012) - a 12% increase over Q2 2012, and the highest quarterly total so far this year, according to the latest research by global property advisor CBRE.

The Q3 2012 figure is 18% down on both the Q3 2011 level and that for the last three-year quarterly average, with lack of product being the main issue that investors are facing.

The United Kingdom (UK) and the Benelux region were the two areas that saw strong increases in activity this quarter. The UK result was boosted by 17 transactions of more than €50 million, the largest being TIAA-CREF’s €354 million purchase of Festival Place shopping centre in Basingstoke. In the Benelux region, investment volumes recovered following weak activity in previous quarters, mainly due to the completion of a few large transactions in Belgium and the Netherlands.

In today’s risk-averse market, investors have shied away from economically underperforming Southern Europe. This shows through clearly in the latest results as the already weak investment activity levels declined further. With only around €200 million in retail investment in Q3 2012 for Italy, Spain and Portugal combined, this is 75% below the last three-year quarterly average of €734 million.

Recent years have seen a remarkable level of retail investment in markets such as Germany and Poland, but 2012 looks set to fall short of performance in 2011 and 2010. After record retail investment levels and with little new development completions, lack of product is proving to be the main stumbling block to further uplift in retail investment activity in these two markets. In Germany, for example, the €1.6 billion of retail investment reported in Q3 2012 was 25% below the last three-year quarterly average, even with the extra boost from the Hamburg Trust’s 78% share acquisition of Shopping Center Milaneo in Stuttgart for circa €400 million.

Iryna Pylypchuk, Associate Director, EMEA Research, CBRE, commented:

“Many core assets that have traded in the market in recent years now sit in the hands of long-term holders. This, combined with limited development completions, means that near-term opportunities to access the European retail investment market are increasingly limited. For investors looking to commit new capital this means one of two things: partnering with a local specialist who is better placed to source product, and/or exploring markets that fall outside the tightly defined core assets and market.”

John Welham, Head of European Retail Investment, CBRE, added:

“There is strong demand for prime and core retail property in all the stronger European economies and in particular Germany, the Nordics, France and Poland. That demand is coming from within Europe but also increasingly from outside Europe, in particular from the USA and Canada. The weaker European countries are seeing dramatically lower levels of trading. This is partly due to less capital looking at these markets overall, but also to the fact that vendors are generally still not prepared to accept the re-pricing levels demanded by the potential investors that are actively pursuing opportunities.”