Europe’s shop rents slumped by 11% in 2020

Prime European high street rents crashed by an average 10.6% last year, the worst performance for 30 years, according to Cushman & Wakefield.

Although the UK continued to be one of the worst affected markets, with rents falling another 15.3% in 2020, the agent’s latest DNA of Real Estate report clearly shows that many European shopping streets have become much weaker.

The biggest drop year-on-year was CEE where rents plunged by 18.1%; in Germany the fall was 13.4%; and Benelux dropped by 11.1%. The average European high street prime yield rose to 4.72%, up from 4.3% a year ago.

Out of 46 markets tracked by Cushman, 41 reported a fall in rents over the course of 2020.

Nigel Almond, European head of data & analytics at Cushman & Wakefield, said the sector continues to ‘feel the heat’ from the shift to increased online spend and reduced footfall. ‘A tightening of restrictions and reports of further lockdown measures towards the end of 2020 have negatively impacted high streets across Europe as non-essential stores close in some locations and tourism levels slump,’ he said.

The impact from the ongoing Covid-19 pandemic on offices is also evident in the DNA report, with weak demand from occupiers in many markets ending the asset class’s 10-year bull run. On average, take-up across Europe fell by more than a third last year.

Office rental growth across Europe slipped further into negative territory in Q4 2020 with prime average rents down -0.5%, taking the annual prime average growth -0.8% lower on Q4 2019. This was the weakest annual performance since Q2 2010 in the wake of the global financial crisis. The figures don’t take account of incentives, meaning net rents will have fallen further.

The UK, with core office rental growth of 1.3%, and Germany with 0.6% growth, were more resilient.

Logistics stands out as the only major asset class to see rental growth and any solid compression in yields. ‘Rents grew 0.8% over Q4 2020, pushing growth over the year to a respectable 1.9% and followed growth of over 3% in 2019. The UK (+3.5%), Germany (+4.7%), France (+2.6%) and Benelux (+3.5%) registered the strongest uplifts over the year as a result of relatively low supply and strong demand,’ the report says.

Opportunities in retail
The dramatic falls in retail rents are leading a handful of large institutional investors to look selectively at investing in the sector again for the first time in several years - at least in the UK which hit serious problems first. They believe buying at current yields where rents have rebased could provide scope for yield compression.

In December, AXA IM-Alts bought a UK mall, The Thistles Shopping Centre in Stirling in Scotland. The asset manager paid £22.5 mln for the city’s dominant shopping scheme and 500,000 sq ft of single level space.

Justin Curlow, AXA IM-Alts’ global head of research and strategy, told PropertyEU the manager believed ‘there could be an interesting recovery or stabilisation play within retail.’

This month, Lasalle Investment Managers said there will be ‘winning’ retail assets and that ‘investing into retail at some point in 2021 will be important.’ See LaSalle heralds 2021 as moment to invest in London and UK


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