Investment in European Retail Property Increases 86% in Q2

JLL reports that retail real estate investment in Europe had a strong quarter, with Q2 volume reaching €9.6 billion, an increase of 86% from Q2 2013’s €5.2 billion. The first half’s €16.4 billion volume is 35% higher than the first half’s five-year average and 44% higher than the first half of 2013.

The two largest cities in Europe, London, and Paris saw historic transactions during the second quarter. The biggest deal involved Land Securities paying €805 million (£656 million) for a 30% stake in Bluewater, Kent. This deal also included €49 million (£40 million) for full asset management rights and 110 acres of surrounding land, valuing the entire project at roughly €2.7 billion (roughly £2.2 billion). Meanwhile, in Paris, a consortium of private investors assembled around Fonciere Apsys acquired the Beaugrenelle Shopping Center for a price in the region of €700m.

These two transactions highlight how large, dominant projects continue to be popular in Europe’s megacities, which enjoy sound economic foundations thanks in part to ongoing urbanization, which is increasing populations and catchments in cities all over the world. Since the financial crisis, about 20 schemes totaling more than €400 million (outright or stakes) have traded across Europe, indicating that the outlook for this type of dominant product is still favorable.

According to Adrian Peachey, the UK’s head of JLL’s retail capital markets, “Bluewater saw strong investor interest, with about 10 parties expressing genuine interest. The asset’s market appeal and the significant additional value associated with the management of the 100% interest are reflected in the final reported yield, which was 4.1%. When buying this kind of product, investors are purchasing higher levels of certainty. Bluewater’s resilience is a result of a combination of sound local economic fundamentals, connectivity, diversity and vitality, identity, as well as dynamic and pro-active management.”

In terms of geography, assets in the sizable, liquid markets of the UK, Germany, and France continue to be in demand; these three markets accounted for more than 70% of total volumes in the quarter. However, there was also a continuation of the broadening of geographic investment targets that has been evident in recent quarters, in addition to this continued focus on the core markets. Particularly given that some investors are increasingly looking for value outside of the core markets, signs of economic recovery and generally rising consumer confidence in the recovery markets of Italy and Spain have sparked significant investor interest and activity. The largest year-over-year growth was seen in Spain in the first half of 2014, followed by Hungary and Ireland.

According to David Brown of JLL’s Retail Capital Markets in Spain, “Owners responded to the strong levels of investor demand and took the opportunity to offer assets to the market, the H1 retail investment volume in Spain was close to €1bn, more than double the total volume of 2013. Investor confidence has increased throughout the year as a result of signs of a discernible trend of improving sales in prime and good secondary centers, which have fueled positive investor sentiment and raised prices. There are currently 650 million euros worth of additional transactions on the market. We anticipate a very busy second half of the year with an additional €750 million in deals on the market or scheduled to officially enter the market in September. Total retail investment volumes in Spain may surpass €2 billion for the first time since 2006.

Looking ahead, we anticipate European volumes to surpass €30 billion for the entire year, as predicted at the beginning of the year in our European Retail Investment Market Review and possibly set a record for the highest volume since 2011. This expectation is based on improved economic sentiment, a continued increase in the weight of capital, and the number of transactions in the pipeline.