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EMEA retail property markets deliver a busy year-end

The European retail property sector ended 2013 on a high note with quarterly volumes soaring 75 per cent to their highest since 2007, according to data released by Cushman & Wakefield.

The increase came on the back of a combination of rising confidence, an improving supply of equity and debt and a spreading of demand across multiple markets opened the door to more activity.
However while year-on-year volumes rose to their highest since 2011, more rapid progress was made in other sectors as supply shortages held back retail activity to a somewhat greater extent. Retail volumes rose 17 per cent on the year while offices rose 23 per cent and industrial a more notable 57 per cent. As a result retail market share for the year overall fell back to 23 per cent from 25 per cent in 2012.
The majority of investment is focussed on the shopping centre market which gained further ground in Q4 but private buyers and occupiers remain keen investors in the core high street market.
Michael Rodda, head of EMEA retail investment at Cushman & Wakefield, says: “Quality supply is tight and demand is ahead of availability in what is still a vendor’s market. As a result we continue to see buyers look further afield to find quality stock, with Southern Europe buoyant in late 2013 and likely to be an even stronger focus for many players this year.”
The market overall is awash with cross border investors with more Asian players looking at retail but North and South American capital of greater note at present.
Rodda says: “What’s been particularly interesting of late has been the amount of capital we have seen being diverted from other areas of the world towards Europe. Obviously a renewed faith in the euro is a key part of this, but with some emerging markets in other regions proving hard or expensive to access, investors are also clearly being attracted to Southern Europe by the quality of schemes, the availability of experienced managers to work with and the transparency of shopping centre incomes.”
The big three of the UK, Germany and France meanwhile saw volumes rise 62 per cent in Q4, with German volumes doubling but French volumes trebling. UK volumes rose at a less dramatic but still buoyant rate of 34 per cent and it remains the largest retail market in Europe, accounting for 29 per cent of all retail trading for the year.
Some other core markets lost out meanwhile, with volumes in the Benelux down 25 per cent and the Nordics held back by a shortage of opportunities, with activity down 16 per cent despite a strong final quarter.
In Central & Eastern Europe retail took a 32 per cent market share in Q4 as volumes rose 15 per cent thanks to a jump in Russia as well as high demand in Poland. However it was the euro zone’s previously distressed markets which showed the biggest upturn, with an 82 per cent volume increase in Q4 driven by Spain and Italy but with Greece, Ireland and Portugal also picking up from a low base.
Looking forward, there is clearly an increasingly positive consensus in the market after retailer trading stabilised last year and is expected to start to rise in most markets in 2014. Retail sales volumes are in fact forecast to increase 1.4 per cent in Western Europe this year and by 3.5 per cent in CEE after gains of 0.1 per cent and 2.3 per cent respectively in 2013. 
High quality retail assets in established core markets should therefore remain in strong demand even as a shortage of supply and demand for yield leads more investors to look more widely, focussing further on Spain and Italy before moving on to Portugal and perhaps Central & Eastern Europe later in the year.
David Hutchings, head of EMEA investment strategy at Cushman & Wakefield, says: “There should still be a note of caution in the market since not all deals are good deals and quite fundamentally retailing across the region will remain polarised, caught between on aggregate an oversupply of space and at best an increase in cost sensitivity due to structural changes such as e-tailing. Nonetheless, a greater breadth of demand suggests volumes will rise further, with a 13 per cent rise to EUR45bn easily supportable by current fundamentals but clearly dependent on investors continuing to broaden their horizons and enough stock of the right quality coming available.”

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