European retail investment rallies in 2022; mixed bag for 2023

After recovering in 2022, investment in European retail real estate is set to slow in the coming months in the face of deepening economic gloom, although bright spots will remain, BNP Paribas Real Estate predicts.

Research by the advisory firm reveals a total of €44.2 bn was invested in European retail assets over the past 12 months (to end September), up 20% on the year-earlier period. This represents a higher increase than for offices (+10%) or logistics (+17%).

At €13.3 bn, investment in retail warehousing (across France, Germany, the UK, Italy, Spain and Poland) was down 4.5% compared to the previous year, but the category still accounted for the lion's share (43%) of investment in retail property.

The high street segment enjoyed a strong year with investment of €10.4 bn (France, Germany, UK, Italy and Spain), up 74% on the previous year. This growth rate exceeded that of 2019 (+3%) and 2020 (+5%). BNP Paribas said the strong momentum was largely driven by a few major deals that lifted the total amount.

Meanwhile, shopping centres (France, Germany, UK, Italy, Spain and Poland) benefited from renewed investor interest compared to last year, with a 157% surge in investment to €7.1 bn, the  highest level since 2018.

Looking ahead, Patrick Delcol, head of retail Europe for BNP Paribas Real Estate, said the current economic climate ‘could slow investment in Europe’, with some assets being withdrawn from the market - as already witnessed with the O'Parinor shopping centre in Paris and the Islazul mall in Madrid – and investors taking a wait-and-see approach as they encounter financing difficulties due to rising interest rates.

‘However’, he remarked, ‘some segments, such as high street and shopping centres, may prove very busy in 2023 due to some players' need for liquidity and the possibility of purchasing for others, particularly those investing in equity, seeking the best market opportunities’.

BNP Paribas said there were already signs of prime retail yields starting to expand in Q3 2022, and that this trend could continue until the end of 2023. However, this rise was less pronounced than for other sectors such as offices and logistics, as retail yields have been adjusting since 2020 in the wake of the pandemic.

On the occupier side, the recovery in tourism and expansion of some retailers were positive trends supporting the market in 2022, but retail sales are likely to fall next year, the firm said.

Footfall on major European thoroughfares has been matching or exceeding pre-Covid levels in many cities (+21% for Paris/Champs-Elysées, +30% on average in Rome and Milan in September). Only the UK still has substantially lower levels.

Said Delcol: ‘Despite rising footfall trends and new store openings, retail sales could decline in 2023. This is largely due to the slide in consumer purchasing power and the fall in the household confidence index.’

He suggested households could refocus their spending on essentials and cut back on impulse and non-essential purchases. ‘So, while sales growth forecasts are positive in 2022 for Europe (+0.4%), they are expected to contract slightly in 2023 (-0.7%). Meanwhile, quite apart from the current economic situation, these forecasts are also the result of a catch-up effect for certain countries, where sales growth soared in 2021, sometimes faster than GDP.’


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