Retail parks were the most resilient retail format during Covid-19 pandemic, says CBRE
Retail parks have been the best performing and most resilient retail format prior to and throughout the Covid-19 pandemic, resulting in a slight compression in yields by 25bps since the beginning of the year, according to new research by CBRE commissioned by Mitiska REIM.
In a market analysis by CBRE of retail parks across Belgium, the research found that for key metrics such as vacancy rates, rents, yields, capital values and footfall, retail parks have proven to be a resilient value proposition and have performed better than high streets and shopping centres both during and after the lockdowns as a consequence of the pandemic. These findings are in line with Mitiska REIM’s analysis of its own portfolio of over 70 retail parks across 11 countries in Western, Central and Eastern Europe, and is supported by research reports in other European markets.
Furthermore, the research found that retail parks have experienced a faster and more substantial recovery, with strong footfall after the first lockdown, especially for those sites anchored by a supermarket. As a result of the Covid-19 pandemic, consumers are now looking for “safe shopping”, and the ability to arrive by car to an outdoor parking area with direct store access and then shop in large retail units with low consumer density has strongly favoured the retail park format.
The CBRE report also found that retail parks have remained resilient to the threat from online shopping. The convenient locations, ample free parking and range of retailers offered by retail parks makes them the best answer to e-commerce and well-positioned for click and collect or returns, both of which can be reinforced by cross-selling.
Prime rental levels in retail parks are estimated at EUR175 per sq m per year. In addition to greater stability, out-of-town is considerably more affordable than shopping centres and high streets which operate at higher rents for similarly sized store sizes.
For retailers, the report found that retail parks offer the most attractive value proposition compared to other retail formats, according to reported costs. Rental, fit-out and labour costs are the most affordable relative to occupied space and sales versus shopping centres and high streets.
In recent years, retailer demand for out-of-town locations has been strong with take-up in out-of-town locations increasing continuously from 2014 to 2019 and totalled over 200,000 sq m in retailer demand in both 2018 and 2019. Typically, out-of-town retailers have been the most expansive in recent years, with a number of supermarkets and home and household retailers opening a series of new locations.
The CBRE analysis showed that vacancy rates in Belgian retail parks are low at 4.7 per cent for large-format developments. In comparison, vacancies are currently averaging 5.6 per cent in shopping centres and 16 per cent in city centres.
Prime yields for well-located retail parks are currently estimated at 5.50 per cent which represents a slight compression of 25bps compared to the beginning of the year, as retail parks remain the most stable asset class with the highest return potential for those seeking retail exposure, particularly during Covid-19. Retail parks still offer the most attractive yields to investors compared to other retail asset classes and remain well positioned for the future.
Thanks to the fact that yields as well as rents are relatively stable, there has been no significant change in capital values as a result of the pandemic, making retail parks the most resilient and defensive of the three primary retail formats. Prime capital values of retail parks are low at around EUR3,200 per sq m based on prime indicators and contain an important and defensive land value. This is significantly lower than shopping centres and high streets where prime capital values are EUR24,000 per sq m and EUR41,200 per sq m respectively, but decreasing.
Kim Verdonck, Head of Research at CBRE, says: “Retail parks in Belgium have been consistent performers both in terms of offering value to retailers and strong return potential to investors. They have been resilient to market changes from e-commerce and short-term volatility from the Covid-19 pandemic, illustrating a stability that is unique to retail parks.”
Bart Rabaey, Head of Corporate Finance and M&A at Mitiska REIM, says: “Looking ahead, we expect to see a continuing trend by consumers and retailers in Belgium and across Europe in favour of convenience real estate locations where retail parks operate and, because of their ongoing resilience, for retail parks to become the retail format of choice for shoppers, retailers and investors alike.”