European prime retail rents and yields have remained stable since Q3 2011, with only a slight 0.3% quarter on quarter increase in retail sales recorded in the EU in Q1 2012, according to the latest report “ EMEA Retail Rent Map 2012” of Colliers International.
High End Market Brands Expansion in Central and Eastern Europe
Major international fashion retailers continued their strong expansion, in particular in Central and Eastern Europe, where we have seen an increasing number of retail developments suitable for international occupiers. The demand from the majority of retailers already present in the CEE markets as well as from the new tenants is directed mainly towards shopping centres. Luxury brands report strong results and expanding not only in top retail destinations such as London, Milan, Moscow and Paris but also prefer top department stores and hotels such as Bucharest.
Majority of Prime Rental Rates Stable
During the six months period to Q1 2012 most prime high streets rents across the key EMEA centres recorded no changes or just minor shifts. Notable exceptions saw some core markets record an increase in prime rents, namely Vienna (14%), Hamburg (12%) and London (11%), as well as in the Baltic cities of Riga (23%) and Tallinn (16%). In the UK it wasn’t only London which bucked the trend, Manchester (11%) and Edinburgh (9%) also saw rental growth. At the opposite end of the scale Albania, Greece and Bulgaria witnessed the biggest falls, with prime rents in Tirana, Athens and Sofia dropping 10%, 12% and 20% respectively.
Shopping centre prime rents in the majority of monitored markets also remained stable. The most significant increases in terms of both six and twelve month periods were recorded in Glasgow (11% and 18%), Moscow (8% and 23%) and Belgrade (8% and 17%). Meanwhile Cairo’s rents went down by 23,5%.
At Stable Levels Remain High Street Prime Yields
Continuing the trend for stability in core real estate across much of the EMEA region, the vast majority of high street prime yields remained unchanged. Mild compression (between -10 and -25 bps) took place in the German cities of Stuttgart, Frankfurt and Dusseldorf. In Helsinki yields dropped by 35 bps to 6% and in Riga further compression was recorded with prime yields standing at 9% in Q1 2012, a -50 bps shift. A significant upward shift of 50 bps took place in Athens.
A similar situation was observed in the case of prime shopping centre yields, with most of the markets reporting flat yields over the six month period. Yield compression took place in the Eastern European markets of Bratislava (-25 bps), Riga (-25 bps) and Vilnius (-50 bps). A minor upward shift (25 bps) was recorded across a number of British regional centres where investors’ activity has weakened. But it was Cairo which saw the biggest change, with a massive increase of prime yields (100 bps).
Investors’ Wide Interest
Investors continued to be focused on the core European markets of the UK, Germany and France. However the top Eastern markets, Russia and Poland, drew attention and recorded exceptionally high retail investment volumes. While in Russia demand is focused mainly on the major markets of Moscow and St. Petersburg, Poland is characterized by strong demand for retail properties outside of the capital.
With economic outlook foggy at best and no sign of improvement in consumer spending, retailers’ strategies will continue to follow current trends: closing down unprofitable units, expansion in prime retail locations and searching for new sales channels such as online sales and mobile phone-based solutions. Continued expansion of e-commerce is anticipated, whatever the wider trends.
Further development of the strong international brands is expected including luxury retailers as well as additional increase of prime rents in the strongest markets’ high streets – London, Frankfurt, Moscow and St. Petersburg. Yields are estimated to remain flat in the vast majority of the monitored markets, with compression forecast for London and St. Petersburg. Investors’ interest will remain focused on the best performing locations.