Retail ‘most resilient’ asset class in 2022, but yields set to soften further

European retail investment volumes declined 15% year-on-year in the third quarter of this year, but the drop was far smaller than for other real estate asset classes, according to adviser Savills.

Much larger declines in Q3 investment activity were recorded for the multifamily (-70%) and office (-27%) sectors, while even industrial (-17%) saw a bigger fall. This puts the retail sector on track to be the most resilient asset class this year, research from the firm shows.

Over the first three quarters of 2022, a total €26.9 bn was invested into the European retail sector, up 25% on the year-earlier period.

 The biggest increases were seen in Romania (+2421%), Spain (484%), Finland (177%) and Portugal (170%).

Investment into shopping centres accounted for 27% of all retail investment activity, compared to 14% for the same period last year.

Savills said that the rapid rise in debt costs in recent months has put upward pressure on yields, with prime shopping centre yields reaching a new high of 5.52% on average across Europe in Q3, 20 bps above Q2 2022 and 105 bps above the last peak in Q1 2018. 

Retail warehouse yields have moved out to an average of 5.27% in Europe and high street yields have slid out by 18 bps to a European average of 3.75%.

‘Given the rising cost of debt and the cost of living crisis squeezing consumer purses, we anticipate further yield softening for the next six months, particularly for high street and retail warehouse assets,’ said Lydia Brissy, director of European research at Savills.

On average, prime high street rents across Europe are down 34% on Q4 2019 levels, with declines of as much as 29% being seen in London, the adviser found.

Larry Brennan, head of retail EMEA at Savills, commented: ‘We take the view that occupational demand should remain relatively resilient next year as retailers look to enact their post-Covid property strategies, but market headwinds such as the rising cost of debt, energy costs and reduced consumer spending will challenge the profitability of many occupiers.’


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