The UK, Germany and Sweden lead growth in European retail real estate investment

Direct investment in retail real estate in Europe during the first three months of 2011 reached €8.04 billion, some 48% up on the same period in 2010, according to the latest report from consultants Jones Lang LaSalle.

Investment volumes during the first quarter of the year even surpassed the fourth quarter of 2010 volumes by 21% as some key transactions were finalized, such as Capital Shopping Centres’ purchase of the Trafford Centre in Manchester, UK, for over €1.8 billion.
 
In total, there were 12 transactions during the quarter that traded for more than €100 million across Europe, the report says.

The majority of investment activity was focused on the UK and Germany which accounted for 77%, €6.2 billion, of total volumes transacted in the first quarter. Germany continues to be one of the most sought after markets and witnessed over 20 deals, including the €700 million acquisition of 42 Metro Cash & Carry wholesale properties by the US private investor Cerberus.
 
Sweden witnessed a surge in activity, as pent up demand finally met with the release of product to the market, the report says. Four major shopping centre deals transacted, the largest being the Gallerian and Punkt galleries in Västerås acquired by The Carlyle Group for approximately €96 million from Boultbee.

‘Sweden has been high on the target list for many investors for some time now, attracted by excellent economic fundamentals and comparatively strong retail sales performance. This demand is now being met with a steady supply of investment product resulting in a strong quarter one transaction volume which we expect to continue for the rest of the year,’ said Shelley Matthews, director of EMEA Retail Capital Markets at Jones Lang LaSalle.

Shopping centres remained by far the most sought after asset type in the first three months of the year, accounting for 60% of total retail volumes traded. This trend was less pronounced in the UK however, where a number of significant supermarket transactions completed, including the purchase of a portfolio of three Sainsbury’s stores by Prupim’s M&G Secured Property Income Fund and the sale and leaseback of 21 Tesco supermarkets for close to €800 million.

Similarly, Germany saw increased activity in retail warehousing with approximately €950 million transacted over the quarter compared to €993 million during the whole of 2010.

‘Looking forward to quarter two and three we expect to see a broad base of transactions in most markets, most significantly in Germany and Central Eastern Europe where pipeline deals are matched by strong investor demand,’ said Jeremy Eddy, head of EMEA Retail Capital Markets at Jones Lang LaSalle.

‘We also expect to see activity in the growth markets of Turkey and Russia return before the end of the year. Despite this activity much of the yield compression we have witnessed across Europe has now paused until rental and turnover growth prospects improve,’ he added.