The FINANCIAL — JLL research reports that despite an overall decrease in retail real estate investment in Europe in the first half of 2016, volumes remain above five year average levels and the flow of institutional equity targeting exposure to the sector continues to increase year-on-year.
Direct investment in retail real estate for the half-year reached €20.7bn, representing a 19% decrease on the exceptional performance witnessed during H1 2015 when volumes reached €25.5bn driven in part by five transactions in excess of €500m and17 transactions in excess of €300m. The current fall in volumes is largely driven by a slowdown in the UK and Germany. However, volumes increased by 14% outside these top two markets, including notable growth in countries such as Austria, Ireland, Italy, Switzerland, Romania, Hungary and Poland. France has seen a significant jump with a 40% increase year-on-year, according to JLL.
The largest investment deals of H1 were urban retail assets, benefitting from robust economic fundamentals and excellent connectivity. Forum Block in Helsinki, Finland, which was bought by Sponda Oyj for €576m, was the largest transaction of the first quarter, followed by Grand Central in Birmingham, UK, bought by Hammerson and Canada Pension Plan Investment Board (CPPIB) for £335m (€441m). In the second quarter, the transactions list is dominated by Blackstone’s purchase of the Blanchardstown Centre in Dublin from Green Property. The regionally dominant centre, already the largest in Ireland, has significant development potential, with the capacity to accommodate around 148,500 sq m of additional mixed-use space. These transactions highlight the ongoing appeal of dominant, well-connected, urban mixed-use assets with strong fundamentals within our growing cities, a theme explored further in JLL’s latest global research report, Destination Retail 2016.
Jeremy Eddy, European Retail Capital Markets Director, JLL, said: “We are seeing healthy levels of investment across Europe in historical terms. There is a wall of institutional money targeting the retail sector and with more to go round, more geographies are benefitting. European retail remains a defensive, safe haven investment destination particularly for those with longer investment horizons because it is less susceptible to short-term setbacks, and prime assets in particular offer a stable income. This equity continues to be largely deployed in partnership with retail expertise, as demonstrated with the Hammerson / CPPIB partnership. The amount of partnering and joint ventures between equity players, with a low cost of capital, and operators with local retail knowledge is unprecedented, and the most significant change in the market in the last decade.”
James Brown, Head of European Research, JLL, comments: “While investment volumes in the full year are expected to be down on the record levels reached in 2015, they are likely to be above the five year average levels. For the most part, declining volumes are predominantly a result of a lack of liquidity, rather than any underlying weakness in market fundamentals, exemplified clearly by markets such as Germany. The amount of institutional money flowing into real estate may provide a challenge to market liquidity longer term. With investors holding for the long term, the demand and supply metrics will be challenged, limiting investment opportunities at the prime end of the market. Any impact of Brexit on the investment market will likely be largely confined to the UK, with limited degrees of contagion to the rest of the EU.”