UK leads strong end of 2010 for European retail real estate investment

European retail real estate investment volumes reached €20.6 billion in 2010, up 68% year on year, according to research by consultants Jones Lang LaSalle.

Its latest report shows that there were some 150 transactions recorded in the fourth quarter of 2010, accelerating total volumes to €6.7 billion, almost 80% up on the previous quarter and comfortably the busiest period of the year.

Over the course of the year, the European retail real estate market saw approximately fifty deals of at least €100 million, together totalling just under €10 billion, half of the annual total transacted.

Some 20 of these were completed in the final quarter, most notably the British Land acquisition of Drake Circus shopping centre in Plymouth, UK, for over €275 million in December and Rockspring’s €224 million purchase at the end of October of a 51% stake in O’Parinor shopping centre, Paris.

The UK closed 2010 as strongly as Germany started, enjoying its busiest period since the end of 2007 with investment volumes surpassing the €2 billion mark in the fourth quarter. Overall the UK accounted for 31% of Europe’s total volume in 2010, with Germany adding a further 23%. The Netherlands and France together transacted €1.4 billion, bringing their combined total for the year to €4 billion, with both markets maintaining their momentum throughout the year.

Poland continued its strong performance from the third quarter, transacting €677 million during the final quarter of the year and cementing its place as the fifth largest retail investment market in Europe during 2010.

‘In the UK retail real estate investment has been dominating performance with volumes encouragingly surpassing levels recorded in 2009 and topping the €6.5 billion mark, with shopping centres accounting for almost 50% of all retail investments. Prime assets continued to be the most coveted, with demand for the best stock typically outstripping supply,’ said Adrian Peachey, head of UK Retail Investment at Jones Lang LaSalle.

‘For other assets investors paid increasing attention to retailer performance to ascertain the quality of potential tenants to ensure rent flows. The key investment trend in the UK was the flight to quality for all retail assets which forced a strong rebound in prices at this end of the market. As a result values for secondary assets outside of key towns and cities are recovering at a slower rate. The interesting factor is that all stock of varying qualities has attracted a good number of equity and leveraged buyers at competitive rates .There was a bubble of stock in October but everything is now firmly under offer or sold,’ he explained.

'There is a wealth of capital facing the UK retail investment market for 2011, particularly from institutional and foreign investors who are in a position to take advantage of the weak Sterling. With the forecast for inflation increasing, retail property still looks a very attractive option. While the market will likely witness further polarisation between prime and secondary retail stock over the next 12 months, the steady flow of supply and healthy levels of demand for the best retail assets should result in another strong year,’ he added.

According to Jeremy Eddy, head of European Retail Capital Markets at Jones Lang LaSalle, a steadily improving retail real estate investment market during 2010 has been punctuated by uncertainty around sovereign debt and greater consumer caution. ‘As a result, the market has evolved into multi-speed geographies and increasing polarisation between prime and secondary. We have seen some major transactions led by European REITs seeking to expand and consolidate their platform as well as landmark transactions from liability driven investors locking into long term real estate returns alongside sector specialists, providing the compelling marriage of equity and expertise,’ he explained.