Retail "most resilient real estate asset class" in 2022 - Savills report

By

Sandra Halliday

Published
Dec 7, 2022

Retail may have been under pressure in recent years, and many of the stories about it may have been negative. But a new report says it's turning out to be the most resilient of real estate asset classes for this year and it has seen major investment.

Property specialist Savills said that €26.9bn has been invested into the European retail sector so far in 2022, which is up 25% compared to 2021.

Admittedly, that investment does also reflect a focus on essentials and budget pricing, as well as the difficulties the property sector has faced. The report said that grocery stores still account for around a third of all retail investment activity in Europe and investment in discounters has doubled this year.

Meanwhile, prime high street rents are down sharply on their peak before the pandemic.

In fact, Savills said on average, prime high street rents across Europe are 34% down on Q4 2019 levels, and they’re even down a hefty 29% in usually strong London. 

DISCOUNTER STRENGTH

The rise of discounters is unsurprising with recent news from Pepco of it just opening its 3,000th store store in Berlin. That Pepco branded store comes after frenetic activity from the company across Europe that has also included new openings and upsizing of Poundland stores in the UK as consumers increasingly switch on to its budget offer, particularly the Pep&Co clothing brand.

But while 2022 is seeing more investment, Savills also said that overall retail investment volumes fell in Q3. It didn't give a reason for this, but given that Q3 2021 came immediately after the pandemic when lots of delayed projects got going, a fall this year makes sense. That said, retail investment volumes were only down 15% compared to investment volumes in other property asset classes that fell between 17% and 70%.

The study also showed that in the first three quarters of this year, investment volumes in the retail sector increased most notably year on year in Romania (+2,421%), Spain (484%), Finland (177%) and Portugal (170%). 

Investment in shopping centres accounted for 27% of all the retail activity, compared to 14% for the same period last year.

FASHION INVESTMENT CONTINUES 

In terms of retailer activity, Savills has observed that there appears to be little change in expansion strategies despite the economic headwinds in Europe. “We expect to see more non-European brands make their European debut in 2023, particularly premium fashion brands from North America and Australia,” said Marie Hickey, Director, Retail Research. 

And despite city centres are having struggled since the onset of the pandemic, the company added that post-pandemic it has seen a rise in city-focused strategies and ‘new opportunity markets' such as Dublin, Hamburg and Oslo are featuring more frequently on retailer acquisition target lists. Likewise, Southern Europe has also moved up the agenda for a number of aspirational brands. 

“Prime high street locations are also being viewed more favourable, bolstered by the recent acceleration in footfall recovery and the fact that in some cases headline rents are significantly below pre-covid levels, essentially making these formerly aspirational locations more affordable – and profitable,” Hickey said.