European Supermarket & Convenience transactions bolster retail investment activity in 202, says Savills
Trends across the European retail investment market have been diverse this year, reflecting the ongoing disruption to the sector, however, according to Savills, despite the headwinds caused by the pandemic, investment into retail held up well in the first three quarters, with volumes amounting to EUR20.9 billion, compared to EUR20.8 billion last year.
Eri Mitsostergiou, Director, Savills European Research, says: ‘Supply of product has been driven by investors who are aiming to reduce their exposure to the retail sector and owner-occupiers who are trying to raise capital through sale and leasebacks. Investment activity has been further strongly underpinned by demand for food and convenience retail, a segment where profits have soared under lockdown.”
The retail sector maintained its proportion of the total volume invested into real estate in the region (17 per cent, compared to a five year average of 18 per cent), but Savills has stated that it is important to note that, given the transitional nature of the industry, some of these assets will have been acquired for repurposing or for a future change of use.
During the lockdown period, food retailer turnovers soared, while post lockdown, retail parks have been more resilient due to their outdoor set up. This has meant that supermarkets and convenience stores (including retail parks) have topped investor shopping lists this year, and the combination of transactions accounts for 40 per cent of total retail activity since the beginning of 2020, versus 22 per cent in 2013. Conversely, shopping centres accounted for 44 per cent of the total retail investment activity in 2013, and their share dropped to 25 per cent in 2020, which reflects the true reversal of fortunes accelerated by the pandemic.
Savills has recorded that supermarket transactions were high above their five year average in Germany (+197 per cent), Spain (+120 per cent), Poland (+64 per cent) and Italy (+76 per cent). And appetite for this retail segment shows no sign of abating as Savills has analysed investment volumes into supermarkets and convenience retail across Europe are already up 40 per cent yoy so far this quarter.
“Supermarkets and the convenience market have proven to be more resilient than other retail segments this year, although they are not immune to the rise of e-commerce, and the pandemic has proven that they must innovate,” says Eri Mitsostergiou. “The smart retailers that will survive and likely thrive post pandemic have been able to optimise their omnichannel offering and supply chain, diversifying to provide greater e-commerce services, convenience stores in urban locations and upgrading their shops to offer improved onsite consumption – a concept known as ‘grocerants’.”
The future for more problematic retail schemes lies in redefining their tenant mix and layout, introducing new uses or repurposing them altogether, which can be costly, says Savills.
“The key question next year will be the level of repricing required in order to attract the value add/opportunistic investors who will be prepared to turn the asset around,” says Oli Fraser Looen, co-head Savills Regional Investment Advisory team, EMEA.
According to Savills, prime retail yields are likely to move out a little further but not as far as in 2008, as economic activity and spending are projected to bounce back in the second quarter of next year. Yields are also likely to soften for secondary assets offering value-add opportunities. Retailers that require the cash for investment into their core businesses are increasingly taking advantage of the growing investor appetite for this sector and unlocking capital through sale and leaseback transactions.
“In 2021 we are confidently expecting to see significant downward price correction in the sector, which will be sufficient to highlight the retail risk premium over other asset classes, and therefore attract opportunistic investors,” comments Oli Fraser Looen. “In the second half of next year we will undoubtedly see some exciting retail deals completing and a wave of sale and leaseback transactional activity across the grocery sector, as well non-food retailers with strong covenants.”