London, November 2012. According to the latest research from Colliers International the majority of retail rents across the region remain flat, with investment volumes lower than the previous year.
According to the latest research from Colliers International the majority of retail rents across the region remain flat, with investment volumes lower than the previous year.
Colliers reports that the European retail market remains in stagnation with retail sales levels balancing around zero during the summer months. While the volume of retail trade in the Eurozone dropped -0.2% in September from August, sales grew 0.1% across the European Union. On an annual basis 0.3% growth was recorded in the EU, but the Eurozone continued to see negative trade levels (-0.8%).
Contrary to popular belief, however, some of the markets are in a good condition. The highest y-o-y growth was recorded in Estonia (9.9%), Latvia (7.9%) and Luxembourg (7.1%), followed by Russia, Romania, Sweden and the UK. Healthy growth in retail sales in these countries has buoyed the overall results for the EU, counterbalancing the large drops in Southern Europe, particularly in Greece (-9.1% in July, y-o-y).
Conversely, it is the secondary high streets and shopping centre locations throughout the EMEA region that have been hardest hit as the mid-market retailers who occupy properties in these locations struggle to survive.
Despite this difficult environment, there are still many retailers who are expanding, but the majority of them are looking for prime shopping centres and high street locations in the major cities.
Major international fashion retailers continue their strong expansion, as do the discount and value retailers who are taking advantage of market conditions to acquire both high street and shopping centre locations previously occupied by department stores or where the landlords have been able to combine a number of units previously unavailable when occupancy levels were higher.
The luxury sector continues to do well with numerous new stores opening across the region. While the main luxury markets of Moscow and London remained the favourite destinations of top brands, other locations in Western and Eastern Europe, as well as in the Middle East, are also attracting the attention of the luxury sector.
During the six month period to Q3 2012 most prime high street rents across the key EMEA centres experienced no changes or just minor shifts. A few markets registered significant increases in prime rental rates, including Saint Petersburg (12.9%), Abu Dhabi (11.1%), Copenhagen (11.1%) and Vilnius (9.4%). Even though London, Paris and Zurich remained flat during the analysed period, they are still the most expensive locations in the region.
Shopping centre prime rents in the majority of monitored markets also remained flat. Notable increases took place in Dubai and Abu Dhabi (11.8%), followed by Frankfurt (6.9%) and Moscow (6.6%). The most significant drops were recorded in Madrid (-20%), Bratislava (-15.8%) and Milan (-10%).
Lack of core product seems to be the main obstacle for investors, with overall retail investment volumes lower than in 2011. The number of high value sales was also below the previous year’s levels, with Germany and the UK attracting the highest investment volumes since the beginning of the year. In Germany, there is a high demand for newly-developed shopping centres or retail parks, especially for properties between €10 million and €50 million. However, due to the lack of supply this demand cannot be satisfied.
The vast majority of both high street and shopping centre prime yields remained stable over the six month period. The largest compression of high street yields took place in Warsaw (-50bps) and Copenhagen
(-25bps) and a mild downward shift was recorded in Frankfurt (-10bps). Weak markets saw further softening of prime yields, with Milan leading the pack (+60 bps), followed by Athens and Madrid (+25 bps).
The upward shift of shopping centre yields was also seen in those markets struggling with poor demand and difficult economic conditions; Athens (+50bps) and Madrid (+40bps) saw the largest increases, while minor shifts were seen in Lisbon, Milan and Rome. At the opposite end, Warsaw and Sofia recorded the most significant compression of prime yields (-50bps), followed by Manchester (-25bps), Dublin (-20bps) and Hamburg (-20bps).
Sean Briggs Managing Director of Colliers International’s Retail Agency Division in Eastern Europe, commented:
“The EMEA retail market will remain stable over the coming months due to the muted regional economic recovery and weak consumer confidence.
“We will, however, see further expansion of international brands, discount chains and luxury retailers as well as growth in e-commerce. We expect many brands to enter new markets, especially in Central and Eastern Europe, more often on a franchise basis.
“Prime rents will remain broadly flat, with some increases anticipated in the stronger retail markets of London, Frankfurt, Moscow and St Petersburg. However, a decrease in rents is expected in some Eastern European markets such as Zagreb, Sofia, Budapest and Kyiv, and we are forecasting further rental decline in Madrid and Lisbon.
“Yields should also remain flat in the vast majority of the monitored markets and, unfortunately, no fast recovery should be expected any time soon for the weakest markets.”