European Retail Property – the squeeze after the crunch
2009
King Sturge: European Retail Property
Executive summary
to create value themselves through a more strategic approach to stock/site selection and even more proactive asset management.
• 2007 was the year of the credit crunch. 2008, the year of the bail-out after the crunch. 2009 will be the year of the squeeze, the real pain for the retail property market. Recovery is unlikely to take root until 2010.
• One of the key concerns is the substantial retail property development pipeline, which is being delivered at a time of economic depression. The evidence is that the schemes opening in 2008 seem to have leased well. However, looking at 2009 and beyond, we are likely to see a growing number of schemes put back into a ‘holding pattern’, whilst some will never ‘take off’.
• The five big economies (UK, Germany, France, Italy and Spain) are all likely to be near or in recession in 2009, whilst emerging economies (such as Bulgaria, Czech Republic, Poland, Romania, Slovenia and Slovakia) will see positive economic growth.
• It is important to distinguish between the investment and occupier markets. Whilst the former has undoubtedly collapsed in many European countries, occupier markets have thus far proved more resilient. As a result, rents are currently holding up better than capital values.
• 70% of all retail sales in Europe come from only five countries; France, Germany, Italy, Spain and UK. The five countries with the lowest sales per capita are Bulgaria, Romania, Slovakia, Lithuania and Poland. Greater affluence will see sales per capita increase, providing a firm foundation for further modernisation of these historically underdeveloped markets.
• It is now a ’tenants’ market’. As occupiers face slowing retail sales, there is a discernible shift in the balance of power between landlords and retailers in favour of the latter. Retailers are becoming increasingly demanding in their space requirements and driving a harder bargain in agreeing rental terms.
• Of all the commercial property sectors, retail is one of the most precariously placed. Both the investment and occupier markets are under severe pressure from different sides – the former from volatility in capital markets and the scarcity of finance, the latter from a depressed consumer market and deteriorating retail sales.
• There will be some fall-out from the sector, with a number of retailers likely to fail in 2009. Occupier demand will be weak, with secondary and tertiary sites most likely to be affected. Fears of a widespread destabilisation of the occupier market however (and vast quantities of vacant floorspace) are unlikely in most markets.
• Difficult as the retail and retail property markets are, it is important to remember that neither has stopped – consumers may be tightening their belts, but they still go shopping. Retailers still have floorspace needs. Shopping centres still have tenants. Understanding and responding to the market is the new challenge. Expectations must be reappraised and in many cases lowered.
• Although these are generic issues across the panEuropean retail market, it is vital to understand the differing dynamics between individual countries and individual towns. Some countries are more immune to the global slowdown. Others are immature in their retailing infrastructure and are still very much in the development phase.
• Denial is not an option. However, a fresh sense of perspective is required, around three key issues:
• It is dangerous to make sweeping assumptions about retail and retail property markets and apply them to every country and every retail asset. Investment and development opportunities still exist, even in times of financial turmoil. The re-pricing of assets will open up extraordinary investment opportunities, particularly for ‘cash rich’ players such as the sovereign wealth funds.
– Timeframe. A recovery is not imminent, so the property community must look to and plan for the longer term. – Expectation. Total returns of nearly 20% are not ‘the norm‘, merely the peaks of a bull market in the mid 2000s. They will take a long time to recover to this level. Investors must survive on rental income where it is available. – Action. Rather than rely on a bull market for yield shift, property investors will have
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King Sturge: European Retail Property
Economics
• Over a longer time frame, a large number of retail sales growth ‘hotspots’ emerge in Western Europe. These include many areas in Sweden (Stockholm, Gothenburg, Malmö), France (Paris, Montpellier, Toulouse) and the UK (London, Thames Valley and Yorkshire). Although the wider German market is likely to remain economically subdued (especially in the East), there are isolated retail sales growth areas there too, including Freiburg and parts of Bavaria.
• GDP growth in the Eurozone of 2.6% in 2007 is forecast to slow to just 1.6% this year. Although no economy is fully incubated from the global slowdown, some have been much more affected than others, notably the UK and Spain. Economic slowdown is becoming increasingly widespread across most Western European countries. • There is a growing economic polarity between Western Europe and Central and Eastern Europe (CEE). Whereas the former countries are usually driven by ‘foreign demand’, the latter are more aligned to ‘domestic demand’. Consumer markets in CEE are likely to remain relatively immune to other financial crises, such that over the next ten years GDP is forecast to grow at twice the rate of the Eurozone (4.1% versus 2.0%).
European retail markets • Internationalisation amongst retailers continues to prove a catalyst for welcome change across Europe. In mature Western European markets, new overseas retailers ensure a continuing sense of market diversity, as well as fresh demand for retail space. In CEE, internationalisation is more a necessity. With a huge development pipeline in most countries, a constant flow of new retailers is needed to simply occupy all the space.
• This has positive implications for the retail property market in CEE. Although local capital markets may be affected by a sharp decline in Foreign Direct Investment (FDI), growth in consumer markets will continue to provide impetus for the retail market to modernise. This provides a solid foundation for new retail floorspace development.
• Our estimates suggest that cross-border trade accounted for around 12% of all European retail sales in 2007. In other words, more than one euro in every ten is now being spent in a foreign retailer unit trading in an overseas market.
• The strength of consumer markets in CEE is underlined by forecasts of robust retail sales growth. Over the next decade, explosive growth is expected in Bulgaria (+96%), Romania (+73%) and Slovakia (62%). Even more mature CEE markets are forecast to enjoy stellar retail sales growth, especially Poland (+60%) and the Czech Republic (+51%). Only Hungary will be more muted (+18%).
• US retailers are increasingly making their presence felt in Europe. We estimate that US operators already constitute around 10% of cross-border European trade. Anecdotally, we are in discussion with an increasing number of US retailers seeking to gain entry to the UK and/ or Continental Europe. The alliance between Carphone Warehouse of the UK and Best Buy of the US is likely to pave the way for the latter establishing a substantial presence in the European electricals sector.
• Identified retail sales growth ‘hotspots’ in CEE include the areas around Warsaw, Wroclaw and Gdansk in Poland and the metropolitan areas around Bucharest and Cluj in Romania.
• The evidence is that retail sales in most countries have yet to feel the full force of the economic slowdown. Pressure on retailers themselves is therefore likely to intensify rather than ease. This will have implications for occupier demand and rental growth going forward, but we do not think that the occupier market will be drastically undermined by excessive fall-out.
• Although many of the Western European countries are poised to enter recession, the longer term outlook is broadly positive. Hard as it may be accept within the current depressed environment, even the UK is forecast to annualised GDP growth of 2.4% over the next ten years. This reinforces our view of focussing on the longer term, rather than being preoccupied with the current state of the market.
• Paradoxically, the share of cross-border retail sales is likely to increase on the back of a wider
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average total returns in the UK are forecast to be 5.8% over the next five years, compared to 15.2% over the last five (and 17.9% over the last three). Most of the key European markets are forecast to achieve annual average total returns over the next five years in the range of 5% to 7%, with some degree of out-performance in Sweden and France.
slowdown in economic and retailer markets. Large, international players are likely to be less vulnerable than many of their smaller, indigenous peers. As well as being more defensive, they are also more likely to be protagonists in any merger and acquisition activity that may well ensue as part of the slowdown and possible fall-out. European retail property market
• Unfortunately, a large proportion of this growth will be driven by income return, rather than capital growth. Average annual capital growth in most markets over the next five years is forecast to be less than 1%, with recovery in 2010 – 2012 only just offsetting the steep declines of 2008 and 2009.
• As the economic crises deepens and access to capital and debt becomes increasingly limited, retail property yields are softening across most of Europe. Prime retail yields in the UK moved out by around 150 bps between June 2007 and June 2008, with further weakening since then. With the number of transactions also diminishing, it is also becoming increasingly difficult to gauge where the market is at.
• A bleak short-tem outlook presents untold challenges. However, with the caveats of lower expectation and a longer-term perspective, there are still opportunities. Essentially, these fall into two broad categories:
• This trend is largely a pan-European one. Even in the more mature markets of CEE, there has been outward movement in prime retail yields, including Poland (+25bps), Hungary (+50bps) and the Czech Republic (75bps). This marks a correction on virtually uninterrupted yield compression over the last few years. Only in less mature CEE markets (where yields are higher in any case) has there been any evidence of any hardening or stability.
• Continued investment and development opportunities in less mature markets (primarily CEE). Retail markets have evolved dramatically but there is still scope for further modernisation. • Opportunistic deals in more mature markets, underpinned by a sound strategy of value creation through pro-active asset management.
• Official data tends to understate the severity of the situation. The most complete datasets refer to 2007 and are therefore lagging the underlying picture. Above all, they underline the fact that 2007 was very much a year of two halves, the first benign, the second a precipitous collapse, with further deterioration during 2008. • 2007 investment figures likewise belie current trends. The total value of shopping centre transactions actually increased last year, by 3% to €26.6 billion. The UK (€9.1billion) and Germany (€4.3 billion) accounted for 50% of this figure. As markets deteriorate, particularly in the UK and Germany, the figures for 2008 are unlikely to be anything close to this. • There is little respite in prospect until 2010. Even then, total retail returns across most of Europe are forecast to remain in single digits. Annual
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King Sturge: European Retail Property
Introduction
differences in consumer behaviour in times of downturn. In some markets, particularly in Central and Eastern Europe (CEE), continued consumer spending growth remains the key catalyst to wider economic stability.
What a Difference a Year Makes Credit crunch. Two words that currently lie at the heart of all weakness in economic, consumer, retail and property markets. As recently as 2006, the European retail property market was basking in total returns of over 16% (source: IPD), only for the market to collapse like a house of cards on the back of the failure of the sub-prime mortgage market in the US. In the period of little over a year, the headlines on the investment side have become unequivocally negative:
There is also more to retail and retail property markets than macro-economics. Every European market is unique in its level of maturity, quality of its retail provision and infrastructure and consumption patterns. These factors will always play out in a hugely influential way, regardless of macro economics.
• Capital values have collapsed
Amidst almost universal gloom across the retail market, there is an increasing tendency to simply dismiss the sector out of hand. In our opinion, to do so is wildly misplaced. Whilst acknowledging the challenges that the industry faces, it is important to remember that the retail market does not simply grind to a halt. In very basic terms, consumers do not simply stop shopping, nor do retailers cease trading and occupying retail property. Life is tougher, but it goes on nonetheless.
• The banks are far less predisposed (or able) to lend • The volume of transactions has correspondingly tailed off dramatically • Yields have softened On the occupier side, the macro outlook is equally bleak:
Where next?
• The economic slowdown has impacted heavily on consumers
As well as an over-dismissive attitude towards the retail market generally, the other worrying industry trend is an obsession with the short-term. There is no denying that at the current time (H2 2008), the market is in a parlous state. The UK, Europe’s largest (and, arguably, most sophisticated) retail and retail property market has thus far witnessed the most severe downturn and the fear is that the worst may still be to come. Equally, that the UK may just be a pre-cursor for future performance across other European markets.
• A deteriorating market has filtered through to consumer confidence and retail sales • Retailers’ trading performance is increasingly suffering • Occupier demand is waning as retailers cut back on or rein in investment and expansion programmes • Vacancy rates are increasing as beleaguered retailers do not renew leases or enter administration.
Both these concerns may well be realised. But at some point in the future (we tentatively predict from 2010), markets will start to recover. Looking out over a ten year economic time horizon, there is cause for longer term optimism.
On a macro-level at least, there appears little cause for optimism. Beneath the macro-level headlines Of course, a macro outlook does not tell the full story. The global economy may be turbulent, but individual markets are not necessarily reacting in the same way, nor suffering to the same degree. From a retailer prospective, there are often marked
In the interim, we still believe that there are still significant opportunities in the short term. In this respect, we would re-iterate our view from a year ago and highlight the need for strategic, micro-level assessment of retail property opportunities:
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• Economic growth can vary dramatically from one country to another
• Micro-level analysis should be paramount to any property assessment
• Even within a single country, regional economic performance is invariably very polarised
• Understanding a retail asset’s catchment fundamentals (geo-demographics, capacity, competition) and its ability to match this with its proposition (scale, tenant mix, shopping environment) is absolutely key
• European markets are at contrasting stages of their retail evolution – some are significantly more mature than others
• The value of proactive asset management in driving and enhancing performance.
• Immature retail markets may offer greater growth opportunities, but with a high risk quotient • Mature retail markets offer stable, but lower growth opportunities
These are constants, however challenging the wider retail market backcloth.
• The weight of investment into an individual country is often disproportionate to its potential growth prospects
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King Sturge: European Retail Property
6
Economics
King Sturge: European Retail Property
Economics
• Output (value added and GDP) • Industry performance (value added by industry)
Background
• Labour market performance (employment by industry and unemployment levels)
Macro-economics and property market performance are inextricably inter-linked. However, macroeconomics are far from being the sole arbiter of an individual retailer or retail asset’s performance – the latter are just as likely to prosper or suffer on the merits (or otherwise) of their micro-level competitive position. In other words, an uncompetitive, poorly sited, outdated, ill-configured, mismanaged shopping centre is likely to struggle no matter how benign the macro-economic outlook. Or a strong, well-managed retailer with an acute understanding of its customer base, clear strategic view and impeccable execution thereof may well report stellar trading figures while macro-economic figures are dismal.
• Consumer spending The service covers all key centres in the EU, including new and future member states. Although we have used Experian Business Strategies’ data extensively, the views expressed represent those of King Sturge, rather than Experian. Macro-level overview – mixed fortunes The term ‘recession’ looms large. However, in some circles it has been called long before it becomes a reality. The Eurozone actually recorded GDP growth of 2.6% in 2007, marginally below the figure of the previous year (2.7%), but above-trend nevertheless. However, the annualised performance masks a marked slowdown over the course of the year, the first half proving much stronger than the second. It was only in the latter months of the year that the ripple effects of the credit crunch started to filter through to the Eurozone economies. This worsening trend has inevitably carried forward into 2008.
With this strong caveat, our macro-economic analysis covers two key indicators: • Forecast GDP growth • Historic and forecast retail sales growth Assessment of GDP performance by country essentially provides a high-level barometer of economic stability and growth prospects. Analysis of retail sales is of closer and more direct relevance to the retail property market, in that consumer patterns and the ability/propensity to spend are its very lifeblood. Contrary to popular view, the two indicators do not necessarily go hand in hand. As we will go on to discuss, there is often a very apparent polarity between consumer- (’domestic demand’) and export- (’foreign demand’) driven economies.
As the largest constituent economy, a welcome upturn in Germany provided a strong catalyst to wider Eurozone growth. German GDP grew by 2.5% in 2007, ensuring the company enjoyed its most significant growth spurt since the 1980s. However, Germany’s economic performance was under-pinned by industrial resilience and export growth. Worryingly for the retail property sector, consumer spending is still stagnant at best. On the surface, France’s growth was less impressive (2.0%) although more broadly-based, with modest consumer spending growth providing a balance to investment and export growth. Italy (the Eurozone’s third largest economy), fared less well, partly on account of unsupportive labour markets (Italy, like Germany, suffers from unfavourable demographics, with an ageing population). Performance was healthier in some of the smaller Eurozone economies, such as Austria, Greece and Finland.
As in previous years’ reports, we have drawn heavily on data provided by Experian Business Strategies. Experian is one of the UK’s leading econometric forecasters and through its European Regional Forecasting Service (ERS), it provides a wealth of historical data and ten-year forecasts for approximately 2,000 regions in 30 European countries. Variables include: • Demographics population)
(total
and
working
age
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Outside the Eurozone, Norway and Sweden continued to perform strongly in 2007, although a slowdown has since begun in both economies as interest rates have been raised to counteract the effects of above-trend growth and an upward spiral in commodity prices.
will be slow, over the longer term, the UK is forecast to again outperform the larger Western European economies. Even factoring in current weakness, UK GDP is forecast to grow at an annual average rate of 2.4% over the next decade, comfortably above the Eurozone as a whole (2.0%), where growth will be hindered by below trend performance in the three leading economies (Germany, France and Italy).
Table 1 – GDP growth by country
GDP Growth
CEE remains fundamentally a growth story, with most EU accession countries recording growth in 2007 in excess of 6%, on the back of structural change, economic convergence and integration, as well as the re-establishment of trade links with Russia and export penetration into Asia. Hungary continues to under-perform its CEE peers, in 2007 reporting its lowest GDP growth (+1.3%) in a decade, as increasing interest rates and fiscal retrenchment continued to impinge on consumer demand.
2007 (%) (a)
2008 (%) (f)
2008 - 2018 (f) (% p.a)
Austria
3.4
2.1
2.1
Belgium
2.8
1.6
1.8
Finland
4.4
2.6
2.5
France
2.0
1.7
1.9
Germany
2.5
1.9
1.9
Greece
4.0
3.4
3.1
Ireland
4.3
2.5
3.4
Italy
1.5
0.4
1.5
Luxembourg
5.1
3.6
3.6
Netherlands
3.5
2.0
2.0
Portugal
1.9
1.3
2.0
Spain
3.8
1.4
2.2
Denmark
1.8
1.4
2.0
Norway
6.0
3.4
2.7
Sweden
2.6
2.1
2.4
Switzerland
3.1
1.9
1.9
UK
3.0
1.8
2.4
Bulgaria
6.2
5.7
4.2
Czech Republic
6.5
4.8
4.1
Estonia
7.1
1.8
4.2
Hungary
1.3
1.6
3.5
Latvia
10.3
3.3
4.8
Lithuania
8.8
5.9
4.5
Poland
6.5
5.1
4.2
Romania
6.0
5.0
3.8
Slovakia
10.4
6.8
5.2
5%
Slovenia
6.1
4.0
3.6
4%
Eurozone
2.6
1.6
2.0
Western Europe
2.1
CEE
4.1
EU27
2.3
Country
Despite the current turmoil in the global economy, CEE is predicted to continue expanding at a much faster rate in the longer term. GDP in CEE is forecast to grow at more than twice the rate of the Eurozone (4.1% versus 2.0%) over the next decade, spearheaded by Slovakia (ahead of the adoption of the Euro) and the Baltic States (despite a recent slowdown). An annual growth rate of 4.2% is also significant in the context of a market of Poland’s size and relative maturity. Fig 1 – GDP growth by country 6%
3% 2% 1%
Source: Experian Business Strategies, King Sturge
Slovakia Latvia Lithuania Estonia Poland Bulgaria CEE Czech Republic Romania Luxembourg Slovenia Hungary Ireland Greece Finland Norway Sweden UK EU27 Spain Western Europe Austria Netherlands Portugal Denmark Eurozone France Germany Switzerland Belgium Italy
0%
The UK actually outperformed the Eurozone in 2007, with economic growth at a three-year high. However, this will be reversed in 2008, as the effects of heavily-indebted consumers, an over-stretched housing market and a re-adjustment of credit markets firmly put the brakes on economic growth. Although the recovery from the current downturn
Source: Experian Business Strategies, King Sturge
Demographics remain the main weakness of most CEE economies. Significant outward migration, combined with lower life expectancy and declining
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King Sturge: European Retail Property
Table 2 – Retail sales (nominal) by country and per capita, 2007 2007 Retail Sales (€m)
Share (%)
2007 Retail Sales per Capita (€)
Index to Average
Austria
41,777
1.9
5,029
114
Belgium
53,199
2.4
5,031
114
Bulgaria
5,035
0.2
659
15
Czech Republic
25,696
1.2
2,506
57
Denmark
154
Country
36,894
1.7
6,771
Estonia
3,696
0.2
2,766
63
Finland
32,670
1.5
6,189
140
France
375,625
16.9
6,095
138
Germany
322,798
14.5
3,916
89
Greece
47,977
2.2
4,288
97
Hungary
21,235
1.0
2,113
48
Ireland
25,473
1.1
5,906
134
Italy
215,809
9.7
3,654
83
5,831
0.3
2,564
58
Latvia Lithuania
5,501
0.2
1,629
37
Luxembourg
4,396
0.2
9,216
209
Netherlands
84,968
3.8
5,176
117
Norway
42,296
1.9
9,019
205
Poland
67,837
3.0
1,781
40
Portugal
30,075
1.4
2,831
64
Romania
16,847
0.8
782
18
Slovakia
4,869
0.2
904
21 67
Slovenia Spain
5,928
0.3
2,949
181,768
8.2
4,074
92
60,982
2.7
6,689
152
Sweden Switzerland UK Total
65,842
3.0
8,780
199
440,235
19.8
7,212
164
2,225,261
100.0
4,410
100
Source: Experian Business Strategies, King Sturge
Retail sales growth by country
birth rates, continues to impact negatively on labour markets. However, this weakness tends to be more than offset by significant productivity gains. Although by no means immune to the wider effects of global economic slowdown (not least lower Foreign Direct Investment inflows from the US and Western European economies), CEE is arguably more insulated.
We would estimate that total retail sales for the whole of Europe were around €2,500 billion in 2007. This estimate includes Russia and all the former CIS countries. Within the wider market, there is a distinct top tier, comprising the “Big 3” of the UK, France and Germany. On aggregate, these three countries generated retail sales (excluding sales taxes) of nearly €1,140 billion in 2007. For context, this represents:
The other key point to note, particularly in the context of retail property, is that the central plank of economic growth in most of CEE is consumerdriven. Whilst other aspects of the economy may be destabilised by external global weakness, domestic consumer demand continues to grow and evolve apace. This should provide a sustainable framework for continued retail property development and investment.
• 58% of all retail sales in the EU15 • 55% of all retail sales in Western Europe (often referred to as the EU15+, representing the EU15 plus Norway and Switzerland) • 51% of our geographic “universe” (the 27 countries listed in table 2, for which we have robust timeseries retail sales data)
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• 46% of all European retail sales.
that these countries remain very small within the grander scheme of European retailing and growth is being leveraged off a very low base.
Note that our geographic “universe” has been extended this year to include Romania, Bulgaria and Slovenia. This leaves just Malta and Cyprus as the only EU27 nations for which we do not have sufficient timeseries data. Total retail sales across our “universe” totalled €2,225 billion in 2007, a 2% increase on the previous year.
A number of other countries have also seen retail sales growth in excess of 50%. This group includes the UK and Sweden, both mature markets, but with liberal and progressive retail infrastructures. In contrast, the countries at the bottom of the growth spectrum tend to be those with the most restrictive, non-consumer focused retail regimes.
Insufficiently robust timeseries data precludes Russia from inclusion in our “universe”, but this by no means detracts from its heightening significance in the European retail market. Annual retail sales in Russia were estimated to be in the order of €250 billion in 2007, making it the largest retail market outside the “Big 3”. Perhaps more significant is the pace of growth – in recent years, retail sales have been increasing at an average annual rate of around 20%. Although this figure has been significantly boosted by inflation, real growth has also been substantial. Nor does this rate of growth show any signs of abating. Given this favourable macro environment and historic under-supply in modern retail floorspace, it is scarcely surprising that Russia is currently the largest retail development hotspot in Europe. This is likely to accelerate further growth in retail sales going forward, rather than merely capitalise on existing positive dynamics.
Table 3 – Historic and forecast retail sales growth Historic Retail Sales Growth 1997 - 2007 (%)
Forecast Retail Sales Growth 2008 - 2018 (%)
2%
8%
Belgium
16%
21%
Bulgaria*
133%
96%
Czech Republic
38%
51%
Denmark
31%
31%
Estonia**
192%
69%
Finland
55%
39%
France
36%
28%
Germany
4%
24%
Greece
65%
52%
Hungary**
51%
18%
Ireland
72%
38%
Italy
-5%
13%
Latvia**
228%
74%
Lithuania
116%
86%
Luxembourg
58%
56%
Netherlands
19%
19%
Norway
50%
31%
Poland*
38%
60%
Portugal
28%
29%
Romania*
102%
73%
Slovakia
82%
62%
Slovenia**
54%
52%
Spain
40%
19%
Sweden
65%
47%
Switzerland
11%
11%
UK
50%
31%
Total*
18%
28%
Country Austria
Ice Plaza, Arad, Romania
Source: Experian Business Strategies, King Sturge * Historic figures based on 2000 – 2007 ** Historic figures based on 1998 - 2007
Over the last decade, many of the CEE nations have witnessed the highest level of retail sales growth. Over this period, the respective retail markets of the three Baltic States (Estonia, Latvia and Lithuania) and those of Romania and Bulgaria have more than doubled in size. This comes with the usual caveat
These include Austria, Switzerland, Germany and Italy. In Italy, our revised figures suggest that retail spending has actually gone backwards over the last decade.
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King Sturge: European Retail Property
Looking forward, the pecking order shows little change. The Baltic States, Romania and Bulgaria (in particular) are forecast to continue seeing stellar retail sales growth as these markets mature. More developed retail markets such as the Nordics (Sweden and Finland in particular) also stand to achieve solid growth.
disclosures on the state of public finances. Growth in the Czech Republic is forecast to sit between the two, at 51%. Two of the ‘Big 3’ countries (the UK and France) are forecast to experience a slowdown in retail sales growth over the next decade. However, in the context of the current market, where monthly year-on-year retail sales are struggling to remain in positive territory, long-term growth rates of 31% and 28% respectively provide more than a certain degree of comfort.
It is also interesting to witness an increasing divergence amongst the largest and most mature CEE markets (Poland, Hungary and the Czech Republic). Historically, the three have tended to track each other fairly closely. However, as they have matured, there are increasing signs of variance going forward. Poland is forecast to see retail sales grow by a substantial 60% over the next decade, compared with just 18% in Hungary, as the country continues to grapple in the aftermath of the
Perhaps the single most significant message to be drawn from Experian Business Strategies’ forecast figures is a measured upswing in the German retail market. Ten year growth of 24% would still be some way below that achieved in the UK and France,
Map 1 – Historic and forecast retail sales growth
Historic and Forecast retail sales growth Historic retail sales growth 1997-2007 (%) Forecast retail sales growth 2008-2018 (%)
55 50
31
39
Finland
Norway
192
65
47 69
228
Sweden
Estonia 74
72
31
38 50
19
19
4 21
Belgium
58
56
19
France
11
24
38
Germany
Luxembourg
Poland 82
Czech Republic 2
11
54
62
8
Austria
Switzerland
60
51
38
52
Slovenia
Portugal
51
Slovakia
18
102
Hungary 133
19
Spain
-5
73
Romania
29 40
86
Netherlands 16
36
116
31
Lithuania
31
United Kingdom
28
Latvia
Denmark
Ireland
13
96
Bulgaria
Italy 65
52
Greece
Source: Experian Business Strategies, King Sturge
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but would nevertheless represent a significant turnaround on the last 10 – 15 years, over which time retail sales growth has been highly erratic.
Despite the narrowing of gaps in many aspects of the market, there is still a gulf in the relative levels of spending power between Western Europe and CEE. To put this into perspective, in 2007 only one CEE country (Slovenia) achieved higher retail sales per head than the lowest per capita spend nation in Western Europe (Portugal). However, these two countries are effectively outliers of their respective geographic groups. Taking a more reflective measure of larger comparative countries, the highest per capita spend CEE nation (Czech Republic) is still 33% under the lowest per capita spend Western nation (Italy).
The basis of this largely positive forecast is an improvement in households’ confidence after two years of GDP growth and employment creation and the assumption that this will naturally filter through to consumer spending. However, we have discussed at length in previous reports the apparent discord between economic logic and the German consumer shopping patterns. In short, being ‘better off’ and having more money to spend does not necessarily result in higher retail sales. On the strength of past experience and understanding of more shopping patterns at a micro level, we would suggest that there is considerable downside risk to these positive retail sales forecasts for Germany.
Table 4 – Current and forecast retail sales per capita
Per Capita Retail Sales 2007
Per Capita Retail Sales 2018
Austria
5,029
5,302
5%
Belgium
5,031
5,960
18%
Country
Bulgaria
Bydgoszcz, Poland
Per capita comparisons In all comparisons, economic and property-related, it is commonplace to draw a line across and subdivide the Continent into Western Europe and CEE. However, as time elapses, it is becoming increasingly less pertinent to do so. Progress in many CEE countries has been rapid, to the extent that on some measures countries in the east surpass those in the west, effectively eradicating the traditional ‘two tier’ system of analysis. For example, the level of modern retail floorspace supply in Poland now exceeds a number of western European markets, including Italy. At their keenest in 2007 (5.00%), retail property yields in the Czech Republic were comparable with many mature markets in the West.
Per Capita Retail Sales Growth 2007 - 2018 (%)
659
1,418
115%
Czech Republic
2,506
3,857
54%
Denmark
6,771
8,714
29%
Estonia
2,766
4,951
79%
Finland
6,189
8,387
36%
France
6,095
7,522
23%
Germany
3,916
4,870
24%
Greece
4,288
6,387
49%
Hungary
2,113
2,570
22%
Ireland
5,906
7,285
23%
Italy
3,654
4,112
13%
Latvia
2,564
4,751
85%
Lithuania
1,629
3,206
97%
Luxembourg
9,216
13,050
42%
Netherlands
5,176
5,951
15%
Norway
9,019
11,080
23%
Poland
1,781
2,912
63%
Portugal
2,831
3,592
27%
904
1,489
65%
Slovenia
2,949
4,465
51%
Spain
4,074
4,672
15%
Sweden
6,689
9,398
40%
Switzerland
8,780
9,647
10%
United Kingdom
7,212
8,745
21%
Total
4,410
5,554
26%
Slovak Republic
Source: Experian Business Strategies, King Sturge
The gulf is, of course, much more pronounced in comparing the two extremes. Bulgaria and Romania currently have the lowest retail spend per capita
13
King Sturge: European Retail Property
standing in a store in one country at a given time and selecting a branded item and comparing it with the exact same item in another store in another country may appear an accurate benchmarking exercise. The reality is that it is not – such an exercise should consider:
ratios of all the countries covered, hence the fact that they are likely to experience some of the most rapid retail sales growth in Europe over the next ten years. The twin effects of robust retail sales growth and a declining population are forecast to lift spend per capita ratios by 115% in Bulgaria and 82% in Romania over the next decade. However, in absolute terms, both will only reach around €1,420 per capita by 2018, still below the levels where Poland, Hungary, the Czech Republic and the Baltic States are now. Bulgaria and Romania (and also Slovakia) are undoubtedly major growth stories with significant upside potential, but this will only be fully unlocked over a long time period.
• currency conversions (if applicable) • related taxes • the cost of an item relative to disposable income • cost of the next item on the shelf and whether there is consistency • alternative products and if there is a lower cost own-brand alternative
Fig 2 – Current and forecast retail sales per capita 15,000
• whether this item is subject to promotion (eg buy one, get one free) at selected trading periods in the year outside the point of comparison
12,000 9,000 6,000
This is not a comprehensive list of factors. As a result, in our opinion, arguments that one country is ‘more expensive’ than another are impossible to justify. Contrary to these weakly supported arguments, we would suggest that high retail sales per capita is usually a reflection of a well-oiled, consumer-driven retail market.
3,000
Switzerland
United Kingdom
Spain
Sweden
Slovenia
Slovak Republic
Poland
Portugal
Norway
Netherlands
Luxembourg
Italy
Latvia
Lithuania
Ireland
Greece
Hungary
France
Germany
Finland
Estonia
Denmark
Bulgaria
Czech Republic
Austria
Belgium
0
Per capita retail sales 2007 Per capita retail sales 2018
To this end, note the significant disparities between the “Big 3” retail markets. Retail sales per capita in the UK are around 15% higher than France and a staggering 45% higher than Germany. Even accepting the argument of currency-based inflated prices and excluding the UK from the comparison, retail spend per head in France is still 35% ahead of Germany. Low spend per capita in CEE markets is an indicator of immaturity and future growth. In Germany, we believe it is more the epitome of a low growth market with little impetus to change.
Source: Experian Business Strategies, King Sturge
At the other end of the scale, the countries achieving the highest spend per capita ratios are invariably smaller, affluent nations, spearheaded by Luxembourg, but also including Switzerland and the Nordic countries. Despite being the largest retail market in Europe (and one of the most populous), the UK still ranks fourth in the per capita hierarchy. Many of the countries that sit at the top of the retail sales per capita ranking lie outside the Eurozone. A facile conclusion from this could be that currency fluctuations, or more explicitly, the historical weakness of the Euro, have inflated the retail sales figures of the non-Euro countries. A more cynical conclusion is that retail goods are simply more expensive in these markets.
Regional retail sales growth hotspots Experience has shown that there are invariably considerable regional differences in economic performance. This carries through to retail sales. To this end, Experian’s European Regional Forecasting Service provides time-series economic data at NUTS2 level. To give some idea of geographic scale, the UK comprises 37 NUTS2 regions and Germany
As we have long argued, international price comparisons are fraught with complication. Simply
14
41 – at the other end of the spectrum, some of the smaller countries (eg Denmark, Estonia, Latvia, Lithuania) are classified as a single NUTS2 region by themselves.
forecast to grow by a substantial 56% over the next ten years. Given its size and the fact that it is more developed than many of the regional areas, this rate of growth is equally impressive. The same could be said of the Mazowieckie region of Poland, which includes Warsaw (+72%).
The figures have been fully revised and updated from previous years. For the first time, we are also able to provide NUTS2 level figures for Romania. Adding these eight NUTS2 regions, the 24 countries for which retail sales data are provided break down into around 270 NUTS2 regions.
Table 5 – Highest forecast retail sales growth by NUTS2 region – CEE (inc Greece) Region
Key Town
NUTS2
Country
Latvia
Riga
LV00
Latvia
Estonia
Tallinn
EE00
Estonia
Lithuania
Vilnius
LT10
Lithuania
Nord-Vest
Cluj-Napoca
RO11
Romania
Sud - Muntenia
Pitesti
RO31
Romania
Sud-Est
Braila
RO22
Romania
Sud-Vest Oltenia
Craiova
RO41
Romania
Dolnoslaskie
Wroclaw
PD51
Poland
Podlaskie
Bialystok
PD34
Poland
Nord-Est
Iasi
RO21
Romania
Helical Retail Park Sosnica, Gliwice, Poland
Wielkopolskie
Poznan
PD41
Poland
Zapadne Slovensko
Nitra
SK02
Slovakia
The usual clarifications still apply. The expenditure figures refer purely to residential spend, ie available spend among the people that live within the boundaries of the NUTS2 region. They do not necessarily correlate with where that spend is made, especially if this is cross-border. Nor will they include spend generated from tourism (domestic or overseas). The ranking list of forecast retail sales growth hotspots is unsurprisingly dominated by NUTS2 regions in CEE (which, for the purposes of this analysis, also includes Greece). For this reason, we have again split the ranking into Western Europe and CEE countries.
Centru
Brasov
RO12
Romania
Mazowieckie
Warsaw
PD12
Poland
Pomorskie
Gdansk
PD63
Poland
Vychodne Slovensko
Kosice
SK04
Slovakia
Peloponnisos
Kalamata
GR25
Greece
Kujawsko-Pomorskie
Bydgoszcz
PD61
Poland
Podkarpackie
Rzeszow
PD32
Poland
Kentriki Makedonia
Thessaloniki
GR12
Greece
Ionia Nisia
Zakynthos
GR22
Greece
Ipeiros
Ioannina
GR21
Greece
Kriti
Heraklion
GR43
Greece
Lodzkie
Lodz
PD11
Poland
Stredne Slovensko
Zilina
SK03
Slovakia
Bucuresti - Ilfov
Bucharest
RO32
Romania
Source: Experian Business Strategies, King Sturge
Table 5 lists the top 25 hotspots in CEE (and Greece). Although the figures have been fully updated, many of the regions are consistent with previous years. The list is again predictably headed by the three Baltic States, all of which are forecast to continue enjoying explosive retail sales growth, albeit off a low base.
NUTS2 regions from the Czech Republic and Hungary are conspicuous by their absence. In the former case, this is not a significant issue, as a number of Czech regions rank just below the parameters of the Top 25, nevertheless set to achieve healthy retail sales growth of more than 50%. These include Jihovychod (of which Brno is the key centre), Jihozapad (Pilsen), Severovychad (Liberec) and Stredni Cechy (Kladno). The same cannot be said of Hungary, where the austerity measures introduced have had a detrimental effect on consumer spending across the entire country.
All the NUTS2 regions listed are forecast to experience retail sales growth in excess of 56% over the next decade. The top 10 includes five Romanian NUTS2 regions, all of which are forecast to achieve growth rates of more than 80%. The capital Bucharest is missing from this list, but is still
15
King Sturge: European Retail Property
Zenith, Ploiesti, Romania
Table 6 lists the top 25 NUTS2 regions in Western Europe - growth is forecast to surpass 34% in each of these by 2018. A total of nine countries are represented, underlining the healthy distribution of growth ‘hotspots’ across the Continent.
Table 6 – Highest forecast retail sales growth by NUTS2 region – Western Europe Region
Key Town
NUTS2 Country
Stockholm
Stockholm
SE01
Sweden
Luxembourg
Luxembourg
LU
Luxembourg
North Yorkshire
York
UKE2
UK
Västsverige
Gothenburg
SE0A
Sweden
Sydsverige
Malmö
SE04
Sweden
Etelä-Suomi
Helsinki
FI18
Finland
Östra Mellansverige
Uppsala
SE02
Sweden
LanguedocRoussillon
Montpellier
FR81
France
Oslo og Akershus
Oslo
NO01
Norway
Småland med öarna
Jönköping
SE09
Sweden
Southern and Eastern
Dublin
IE02
Ireland
Inner London
London
UKI1
UK
Île de France
Paris
FR10
France
Região Autónoma dos Açores
Ponta Delgada PT20
Portugal
Åland
Aland
FI20
Finland
South Yorkshire
Sheffield
UKE3
UK
Aquitaine
Bordeaux
FR61
France
Berks, Bucks and Oxfordshire
Reading
UKJ1
UK
Algarve
Faro
PT15
Portugal
Freiburg
Freiburg
DE13
Germany
Tübingen
Tübingen
DE14
Germany
Lincolnshire
Lincoln
UKF3
UK
Midi-Pyrénées
Toulouse
FR62
France
Cornwall and Isles of Scilly
Truro
UKK3
UK
Região Autónoma da Madeira
Funchal
PT30
Portugal
Sweden features prominently. Stockholm spearheads the list of Western growth hotspots (+57%), with the NUTS2 regions surrounding other Swedish cities (eg Gothenburg, Malmö, Jönköping) likewise forecast to achieve robust retail sales growth.
Eden Centre, High Wycombe, Bucks
The list of growth hotspots is often dominated by smaller NUTS2 regions, where growth is invariably being driven off a low base. There are still examples of this in this year’s list – Luxembourg, Cornwall/ Scilly Isles and Madeira, to name three. However, the opposite extreme is also true, with many ‘capital city NUTS2’ regions propelled towards the
Source: Experian Business Strategies, King Sturge
16
top of the growth ranking. Note that London, Paris and Dublin all feature in the top 25 in spite of their respective sizes, all three forecast to achieve retail sales growth in the region of 40% over the next decade. Stockholm, Oslo and Helsinki can also be added to this list. This adds credence to the school Europe of thought that ‘big is best’ and that the larger centres will prosper more (or at least prove more 008 to 2018 defensive) than many of their regional and smaller peers.
and
becoming more manifest. Freiburg and Tübingen in the South are both forecast to see retail sales grow by around 36% over the next decade. Karlsruhe and Bavaria are also set to grow by more than 30%. In contrast, growth in many of the former Eastern Germany regions (eg Chemnitz, Leipzig and South West Brandenburg) is forecast to languish at less than 10%. The disparities within Germany are in many respects a microcosm of the whole of Europe – the micro picture supersedes the macro. In retail property investment/development terms, it is necessary to understand the local picture as much as the national one.
Perhaps the most surprising feature of the growth hotspots list is the appearance of German regions. As discussed at length in the past, the German retail economy is beset by a series of constraints that conspire to restrict overall growth. However, pedestrian macro-level growth masks a whole myriad of regional disparities and these are gradually
Norway
Finland
Sweden
Map 2 – Retail sales growth hotspots in CEE
Estonia
Central & Eastern Europe
Retail Sales Growth 2008 to 2018 <50%
Denmark
50 - 60%
United6070 -- 70% 80% >80% Kingdom
Latvia Lithuania
Netherlands Belgium
Poland
Germany
Czech Republic
France
Slovakia Switzerland
Austria
Hungary Romania
Slovenia
Italy
Source: Experian Business Strategies, King Sturge
Bulgaria
European retail markets Greece
17
King Sturge: European Retail Property
Map 3 â&#x20AC;&#x201C; Retail sales growth hotspots in Western Europe
Western Europe
Retail Sales Growth 2008 to 2018 <20% 20 - 30% 30 - 40% 40 - 50% >50%
Finland Norway
Sweden Estonia
Ireland
Denmark
United Kingdom
Latvia Lithuania
Netherlands Belgium
Poland
Germany
Czech Republic Slovakia France
Switzerland
Portugal Spain
Austria
Hungary Slovenia
Italy
Romania
Bulgaria
Greece
Source: Experian Business Strategies, King Sturge
18
European retail markets
King Sturge: European Retail Property
European retail markets
paying tenants and left with large volumes of vacant floorspace
Armageddon for Retailers?
• Downward rental pressure. Retailers will simply not support rent increases at reviews, either seeking to strike a harder bargain, or surrendering the lease.
The retail sector remains the lifeblood of the retail property market. The relationship is not always a harmonious one and there is frequent debate as to which lies where in the ‘food chain’. However, there will always be a strong aspect of mutual-dependency. The retailers need appropriate property stock from which to trade, the property sector needs retailers to occupy space to generate rent.
Whilst there are elements of reality (and inevitability) in all three of these strands, the net effects are unlikely to be as widespread as to create an ‘Armageddon’ scenario. Retailers will undoubtedly seek to cut costs in the downturn and this will lead them to review their space requirements. For some, this may lead to a scaling back of expansion programmes. However, a situation where virtually no retailers have requirements for new space is unlikely to materialise.
The retail sector is subject to its own pressures and stresses. The key ones may emanate from a common source (the credit crisis and wider economic slowdown), but there manifestations are different. The property investment market has been most severely hit by constraints on funding and a subsequent collapse in volumes and capital values. The retailers’ issues are far more consumer-related – the economic crisis impinging upon consumer confidence and this filtering through to retail sales. In this respect, there is an important distinction to make between the retail property (‘investment’) and retailer (‘occupier’) markets.
That some retailers will fail in the downturn is inevitable. However, the likely scale of the fall-out needs to be put into some perspective. The retail landscape is unlikely to change dramatically as a number of large-scale operators fall by the wayside. It would be wholly wrong to equate the fate of a number of the banks (high street and investment) with the leading retailers. Even those retailers that do enter administration may well be bought by other operators or private equity groups. The prospect of a series of high profile, large scale retail names simply disappearing and leaving vast expanses of empty space on the high street is wide of the mark.
As we will go on to discuss in detail, many aspects the European retail property market are already in freefall. The assumption, certainly in the media, is that the retail sector is following suit. However, there is still limited official evidence to support this. In other words, the retail sector may be being ‘talked down’ prematurely. That is not to say that it is not under severe pressure and that this is likely to intensify before it eases.
The third of these strands may not grab the media headlines, but is the most probable of the three and there is already substantial anecdotal evidence to support this. Retailers will become more demanding in their requirements, both in terms of the space that they occupy and the deal that is struck thereupon. In short, the balance of power is slowly shifting in the retailers’ favour. In the UK, it is no co-incidence that the perennially contentious debate of quarterly upfront rent payments has recently again come to the fore.
What is the ‘Armageddon’ scenario on the occupier side? There are three key strands that would impact on retail property markets: • Sharp reduction in occupier demand. The common belief is that in times of turmoil, retailers simply ‘batten down the hatches’ and call a halt to expansion programmes and offload surplus stores. There is a subsequent shift in the supply versus demand equilibrium
In summary, retail occupier markets are under intensifying pressure, but the assumption that they will merely collapse is premature.
• Widespread retailer fall-out. Retailers simply failing to weather the pressure and falling into administration/liquidation. Landlords losing rent-
20
Western Europe versus CEE
German giant Metro is often the key protagonist. They are followed by the major pan-European food operators (eg Auchan, Carrefour, Rewe, Edeka, Aldi, Schwarz Group, Tengelmann, Ahold, Tesco). An initial few years of ‘space chasing’ between the key operators ensue, invariably culminating in a degree of consolidation, with those that have made less of a mark in that country selling their assets to one of their competitors that has. The retail warehousing operators tend to come next, particularly the major DIY operators (eg Bauhaus, Baumax, Hornbach, Praktiker, B&Q, Leroy Merlin).
Of course, these are generic observations about the retail market across Europe. There will be differences between individual countries and something of divide between Western Europe and the less mature markets of CEE. Whilst retail sales are already stuttering in many Western European countries, robust consumer spending growth in most CEE countries continues unabated. Although not divorced totally from the global economic slowdown, the occupier issues outlined are less relevant in CEE, much of which is still in the development cycle. Analysing this cycle highlights many aspects of the mutual-dependency between retailers and the property market.
Thus, the out-of-town and retail warehousing market tends to start the modernisation process. The first signs of the high street following suit is the opening of high profile luxury brands (eg Gucci, Armani, Prada, Burberry) in prime pitch downtown locations in the capital city. The media attention that these franchise stores generate is disproportionate to their importance to wider retail evolution. Much more significant is the arrival of more mainstream high street names (eg Zara, H&M, Mango, Marks & Spencer, Douglas) and the development of modern in-town shopping centres. This is the key turning point in the evolution of the retail market.
Most CEE retail markets have evolved from a standing start. Historically, they were characterised by low quality high street shops and market halls, occupied by independent and state-owned retailers. The transition to free market economies has provided the impetus to modernise the retail infrastructure, with the arrival of international operators one of the key catalysts. There is a basic pattern most of the CEE markets follow (or indeed have followed). This entails eight stages or phases (Fig 3). This a basic sequence, often with significant overlap and concurrence between individual stages.
The more mature CEE markets such as the Czech Republic and Poland have successfully trodden this path and are now very much at Phase 7 and 8 of the cycle. Particularly noticeable now is the manner in which attention is gradually cascading away from the respective capital cities, with a spate of development in regional towns (usually with a population of more than 100,000),
Fig 3 – Modernisation process of CEE markets Phase 1
Arrival of international cash & carry operations (eg Metro)
Phase 2
Arrival of key international grocery retailers
Phase 3
Arrival of key international big box retailers (esp. DIY players)
Phase 4
International luxury brands establish presence in prime pitch downtown
Phase 5
Major international High Street brands (eg H&M, Zara) enter market
Phase 6
Development of modern, ‘Western-style’ shopping centres in capital city
Phase 7
Ongoing evolution – new markets entrants, improving shopping centre stock
Phase 8
Development of modern retail facilities in regional towns away from capital
At the other end of the scale, a number of the markets (eg Macedonia, Kazakhstan) are still at the Phase 1 stage. Others, such are Ukraine, Croatia and Bulgaria, have progressed fairly rapidly to Phase 4/5. The huge development pipeline in Moscow would seem to suggest that Russia is at around Phase 6 of the modernisation process.
Source: King Sturge
The first entrants tend to come from the cash and carry sector, which has low barriers to entry.
21
King Sturge: European Retail Property
International expansion: still ongoing
• Country selection is dependent on a number of factors – more often than not, these can be as basic as geographic proximity, common language or historic/cultural links
A common denominator between Western and CEE retail markets is the growing presence and influence of international retailers. As outlined, international retailers are the key driving force behind modernisation of CEE markets. Cross-border expansion amongst retailers is less market-defining in more mature retail economies, but nevertheless brings a constant source of diversity and new competition to indigenous markets. As occupier demand tightens, new players from overseas also provide welcome relief to landlords.
• European markets are becoming ever more international, with cross-border activity accelerating • Operating from a wide geographic base can be a good hedge against individual market weakness • Conversely, the negative flipside can occur when poor performance in a single market drags down that of the group as a whole
Whatever the prevailing market conditions, the rationale behind international retail expansion remains constant:
• For every retailer international expansion success story, there are probably many more failures
• Domestic expansion opportunities may be limited as a result of saturation of coverage, excessive competition or stagnant market growth
• Failure is invariably the result of a retailer trying to impose its domestic values on its new market, rather than tailoring its proposition to meet local demands
• International markets offer the opportunity of substantial, long-term growth
• Admitting defeat perseverance
• But international expansion remains fraught with risk
• Scale remains all-important – this will ultimately always drive consolidation in any international market.
22
is
better
than
blind
Overseas expansion: routes to market A retailer with international aspirations has four key options for market entry: • Organic expansion • Acquisition of a local operator • Collaboration with (and possibly later acquisition of) a local operator • Franchising The relative risks and rewards of each option are manifold. The financial returns of organic expansion are potentially the highest, but there are also significant downsides. Organic expansion can be a slow, piecemeal process, and in a market where scale is of huge importance, this can result in a long leadtime to break-even. “Going it alone” also increases the risk of failing to read the local market and adapt accordingly. As a consequence, only a limited number of retailers have successfully ventured down this path. IKEA (which in many respects had its hand forced by its huge footprint space requirements) is the obvious standard-bearer for successful organic expansion on an international scale.
Retailer internationalisation continues to be an important facet of the European property market. In theory, all retail assets (shopping centres, high street units and retail warehouses) could be occupied by local retailers, as indeed they historically were. However, overseas retailers bring a host of advantages: • Many are cash-rich multinationals, able to pay a prime rent with solid covenant strength • They bring a sense of diversity to a market and lay down a competitive gauntlet • This brings impetus to existing retailers to upgrade their own propositions in response • International brands have a multiplier effect – where high-profile brands venture, others tend to follow
Entering a new overseas market through acquisition is an ideal means of gaining operational scale and local market knowledge in a single swoop. However, the risk and potential downside come in the form of a large up-front investment and the cultural differences that may ensue in any merger.
• Particularly in emerging markets, a major international retailer can give a scheme credibility and put it on a wider radar screen – among consumers, other retailers and would-be investors.
23
King Sturge: European Retail Property
A variation on this route to market is where a retailer establishes a collaborative relationship with a local operator, possibly with an eye to buy-out in the longer term. This is obviously a major factor in historically “closed” markets such as China and India, where outright acquisition of local operators remains unlawful.
owned and franchise stores. In some markets, it has actively bought back its franchise and invested its own money in the local business. An example of this was Russia, where the company opened six franchise stores in partnership with Finnish department store group Stockmann. In 2006, Inditex bought out its franchisee for a reported €42m, in order to commit its own resources to the venture.
Low
Franchising
Collaboration/ JV with local operator
Return
While the low-risk nature of franchising is likely to remain attractive to internationalising retailers for some time to come, the next stage in the evolution of the European market will hopefully see more high street retailers committing company resources to establishing and operating their own store networks in overseas markets. This would be a major seachange in the market.
High
Risk
Acquisition of local operator
Organic expansion
High
Low
Fig 4 – Routes to market for internationalising retailers
Source: King Sturge
Retail markets: how international?
Acquisition has formed the mainstay of Tesco’s expansion into Europe (although its forthcoming entry into the US will be organic). In 1995, it purchased Global in Hungary and the following year it bought out the European interests of US retailer Kmart, enabling it to establish a firm foothold in the Czech Republic and Slovakia. Securing early market entry and quickly gaining initial scale, Tesco has since leveraged its position and expanded organically, thereby achieving dominant standings in all three of these markets.
As in previous years’ reports, we have again estimated the level of overseas penetration in each key European market. The level of overseas penetration is defined as the percentage of retail sales that is generated by non-indigenous retailers. For the sake of data consistency, the figures refer to 2006/07, as this represents the time for which data is most complete and therefore comparisons are most meaningful. Collectively, the 28 European countries under review generated retail sales of €2,423 billion in 2007. We estimate that trade from overseas retailers accounted for around 12% of this figure. In other words, more than one euro in every ten is now being spent in a foreign retailer trading in an overseas market.
Franchising remains the most popular means of overseas expansion, especially among high street retailers (as opposed to food and retail warehouse operators). Franchise agreements vary from retailer to retailer (and, indeed, from store to store), but underlying commonality is that they are low-risk but relatively low-return. Although the appearance of key international brands (particularly in the luxury goods sector) in high streets and shopping centres around the world makes for good headlines and attracts consumer interest, the fact remains that franchises are little more than licensing agreements.
Financial market movements and currency fluctuations make it difficult to put this figure in a timeseries context. Major currency movements can severely distort the underlying picture. Taking the Czech Republic as an example, taking figures at face value, it would appear that foreign retailers’ share of the market declined sharply over the last year, when clearly this was not the case. Foreign retailers’ sales actually increased by a substantial amount (+21%) in 2007, far greater than retail sales in local currency. However, converting these retail sales figures from Koruna into Euros using
There are instances of retailers buying out their franchisees. These include Inditex of Spain, which includes Zara, Massimo Dutti and Bershka in its portfolio of brands. One of the few truly global retailers, the company operates both company-
24
with independents the mainstay of the market. Against this relatively weak competitive backdrop, large international grocery retailers can quickly establish significant national market share.
fluctuating exchange rates shows a decline in share, in contrast to the underlying picture. The figures in Table 7 and Fig 5 therefore represent a ‘point in time’ picture.
This partially accounts for the low level of overseas retailer penetration in Russia. Historically a “closed” market, an increasing number of Western retailers are expanding into Russia as the market modernises. However, this has yet to transcend the core grocery market, which remains dominated by indigenous operators. This will undoubtedly change over time, but it will be a number of years before Western retailers secure a significant share of the Russian market.
Table 7 – Share of retail market held by cross-border players 2007 Country
Cross-border Participation in Retail Sales (%) 2007
Estonia
50.1%
Hungary
47.5%
Austria
37.9%
Czech Republic
33.3%
Latvia
33.1%
Portugal
31.2%
Norway
23.6%
Ireland
23.0%
Belgium
21.7%
Luxembourg
21.3%
Spain
17.7%
UK
16.8%
Denmark
16.4%
Slovenia
16.1%
Slovak Republic
15.6%
Poland
15.3%
Netherlands
15.1%
Lithuania
14.6%
Romania
12.8%
Total
12.1%
Italy
12.1%
Finland
10.7%
Sweden
9.1%
Switzerland
8.5%
Greece
8.4%
France
6.7%
Bulgaria
6.4%
Germany
4.0%
Russia
2.0%
Fig 5 – Share of retail market held by cross-border players 2007 Estonia Hungary Austria Czech Republic Latvia Portugal Norway Ireland Belgium Luxembourg Spain UK Denmark Slovenia Slovak Republic Poland Netherlands Lithuania Romania Total Italy Finland Sweden Switzerland Greece France Bulgaria Germany Russia
33% 33% 31% 24% 23% 22% 21% 18% 17% 16% 16% 16% 15% 15% 15% 13% 12% 12% 11% 9% 8% 8% 7% 6% 4% 2%
0
10
20
30
40
50
60
Source: King Sturge, Mintel
Of the “Big 3” Western European nations, the UK is the only one where international retailers command a double-digit market share (17%). This owes much to large-scale acquisitions of major retailing operations, the most notable being WalMart’s takeover of Asda (this alone accounts for around 6% of the overseas share of the UK market). However, there are also examples of successful organic expansion. It is worth flagging that even in the current difficult trading environment, we are in negotiation with increasing numbers of overseas retailers (especially from the US) keen to establish a presence in the UK.
Source: King Sturge, Mintel
Many countries have an overseas retailers’ share significantly higher than the pan-European average of 12%, which reflects relatively low penetration in large markets such as Germany, France, Italy and Russia. The level is partly country’s invariably
50% 47% 38%
of market share by international retailers underpinned by the structure of each grocery sector. Immature markets are characterised by market fragmentation,
25
King Sturge: European Retail Property
Fig 6 â&#x20AC;&#x201C; Breakdown of cross-border sales by country 2007
Austria
38%
Belgium
22%
Bulgaria
6%
Czech Rep
33%
Denmark
16%
Estonia
50%
Finland
11%
France
7%
Germany
4%
Greece
8%
Hungary
47%
Ireland
23%
Italy
12%
Latvia
33%
Lithuania
15%
Luxembourg
21%
Netherlands
15%
Norway
24%
Poland
15%
Portugal
31%
Romania
13%
Russia
2%
Slovak Rep
16%
Slovenia
16%
Spain
18%
Sweden
9%
Switzerland
8%
UK
17%
Total
12%
0%
10%
France
20%
30%
Germany
40%
50%
Sweden
60%
70%
UK
80%
US
90%
100%
Other
Source: King Sturge, Mintel
NB Figures on the far right of the chart show total % share of overseas retailers in that market. Bars on chart show % breakdown thereof
26
Much of this represents continuing trends from previous years, rather than step change. The following ‘cross-border’ observations stand firm, especially the extent to which many internationalisation strategies are based on cultural and geographic reasons, rather than economic ones: • The high penetration of UK retailers in Ireland – the only international market many UK operators would consider relatively low risk • The large slice of the Austrian and Swiss markets held by common-language German retailers – and also the significant share they have in neighbouring Netherlands • The substantial share French retailers have in neighbouring Belgium, Spain and Switzerland We have discussed the shortcomings of the German retail market in depth in previous reports. The combination of lacklustre retail sales, unfavourable retail legislation and unreceptive consumer attitudes (and a pre-occupation with price) make Germany a very difficult market for overseas retailers to penetrate with long term success. There are exceptions (eg Gemany is H&M’s and IKEA’s largest market) but the share of overseas retailers is very low at just 4%.
• Significant cross-border trade “internal” to the Nordic region • The UK is the prime destination for US retailers looking to establish a presence in Europe, either organically or through acquisition. Will these trends continue in times of economic depression? Conventional wisdom suggests that for a retailer that is struggling, international expansion may seem a luxury rather than a shrewd strategic move. However, there has been very limited evidence to date to bear this out. Admittedly, much of this evidence is anecdotal. Our agency experience of advising would-be UK entrants and US operators looking to expand into Europe suggests that the level of interest is increasing rather than receding, despite worsening economic conditions.
Paradoxically, limited growth opportunities domestically have made German retailers some of the most expansive in Europe. Our analysis shows that German retailers account for 27% of all European cross-border trade, the highest share of any nation. This share spans a number of sectors, including grocery (eg Aldi, Schwarz Group, Tengelmann, Rewe, Edeka), DIY (Obi, Praktiker, Hornback, Bauhaus), health & beauty (Douglas, Schlecker), electricals (MediaMarkt/Saturn) and clothing (Peek & Cloppenburg).
Many of these retailers are fairly niche in nature and are unlikely to have a significant impact on the overall cross-border market share figures (Table 7). However, the downturn could prompt other changes, with the larger international retailers more likely to be beneficiaries rather than victims in any fall-out in the sector. As a general rule, smaller, indigenous operators are likely to prove more vulnerable in times of retail hardship and some will inevitably be acquired by the larger international players. The share of the pan-European retail market held by international retailers will accelerate rather than decline.
French retailers account for the second highest proportion of European cross-border trade (22%), followed by the UK (11%), the US (10%) and Sweden (8%). In the cases of the UK and Sweden, this share is heavily concentrated in the hands of very few retailers – Tesco, DSGi, Kingfisher and KESA from the UK, IKEA, H&M and the retail cooperative ICA from Sweden.
27
King Sturge: European Retail Property
In short, therefore, the internationalisation of the European retail market continues apace, despite the increasingly challenging economic backcloth. Rather than de-stabilise the overseas expansion process, we believe the opposite may materialise â&#x20AC;&#x201C; a depressed retail market is more likely to play into the hands of the large international operators, particularly from the grocery sector.
28
European retail property markets
King Sturge: European Retail Property
European retail property market
Paris, London and Dublin emerge as the three most expensive trading locations in Europe. The UK, France and Ireland all operate to zoning systems, so the figures quoted are inflated versus other countries. Nevertheless, even allowing for this distorting factor, it is still fair to assume that rent is at a significant premium in these three cities compared to others across the continent. In global terms, the Champs Elysées in Paris and Bond Street in London are surpassed only by 5th Avenue in New York and Causeway Bay in Hong Kong.
European prime retail rents First, the positives. Prime retail rents in many European cities continue to increase. A crumb of comfort in an otherwise depressed sector. However, the perennial issue is the degree to which prime rents are reflective of underlying rents. Prime rental markets tend to operate in isolation from the wider market, driven as they are by prestige or flagship locations on a historic street or thoroughfare. Retailer demand for units on these locations is invariably very different from non-prime areas, with a combination of domestic retailers looking for flagship stores and overseas retailers seeking out trophy locations. In historic high street locations, the supply of units of the right size and configuration seldom meets demand, keeping rents at a premium. Benchmarking prime rental values countries carries the usual caveats:
between
Northern Quarter, Dublin
• some countries report on a monthly basis, other annually
And what of non-prime rents? Whilst capital markets have collapsed, the indication is that occupier markets have thus far proved more resilient. As we discussed when looking at retailers, there have been some instances of occupiers either scaling back on expansion programmes or going into administration, but to date, this has not been sufficient to radically derail the rentals market. There are obviously differences/polarities between individual towns and pitches within the centres (eg primary vs secondary), but as a very general rule, the European retail rentals sector has thus far weathered the storm more effectively than its capital counterpart.
• most report in euros, although a number (UK, Switzerland, Denmark, Sweden) report in local currency, while Turkey and Russia tend to operate on a US dollar basis • there are discrepancies between unit sizes – for example, a very small unit or kiosk (<100m²) will be subject to different rental values from a largescale unit/department store on the same pitch • in UK, Ireland and France there is the issue of zoning – a sliding scale of rental values within units, such that the headline figure may not reflect the unit as a whole.
European prime retail yields For the purposes of our benchmarking, we have converted all figures into €/m²/annum. The figures are indicative of prime rentals for standard-sized units in prime-pitch locations across each country (for larger countries, we have included data for multiple cities). We have not made any adjustment to factor in zoning – for those countries that operate zoning systems, the figures quoted refer to zone As.
Deriving an accurate, up-to-date picture on panEuropean prime yields is tantamount to shooting at a moving target. There is currently so much movement (very little of it inward) that figures are subject to constant change. The second complicating factor is the growing scarcity of deals upon which to base comparisons. In short, diminishing evidence is largely showing a rapidly deteriorating picture.
30
Table 8 – European prime retail rents 2005 - 2007
Country Austria Belgium Bulgaria Croatia Cyprus Czech Rep Denmark Estonia Finland France France France France Germany Germany Germany Germany Germany Greece Hungary Ireland Italy Italy Italy Italy Latvia Lithuania Luxembourg Netherlands Netherlands Norway Poland Portugal Portugal Romania Russia Serbia Slovakia Spain Spain Spain Sweden Sweden Switzerland Switzerland Turkey UK UK UK UK UK UK
City Vienna Brussels Sofia Zagreb Nicosia Prague Copenhagen Tallinn Helsinki Marseille Paris Lille Lyon Berlin Frankfurt Munich Stuttgart Cologne Athens Budapest Dublin Milan Rome Bologna Turin Riga Vilnius Luxembourg Amsterdam Rotterdam Oslo Warsaw Lisbon Porto Bucharest Moscow Belgrade Bratislava Madrid Barcelona Valencia Stockholm Gothenburg Zurich Geneva Istanbul London Glasgow Newcastle Manchester Birmingham Leeds
Location Kärtnerstrasse Rue Neuve Vitosha Blvd Ilica Street Makarias Avenue Wenceslas Square Strøget Viru Street Aleksanterinkatu Rue St Ferréol Champs Elysées Rue Neuve Rue de la République Tauentzienstrasse Zeil Kaufingerstrasse Königstrasse Schildergasse Ermou Vaci utca Grafton Street Via Montenapoleone Via Condotti Galleria Cavour Via Roma Krastna Gedimino Avenue Grand Rue Kalverstraat Lijnbaan Karl Johan Gate Plac Trzech Krzyży Av. Liberdade Rua de Santa Catarina Bulevardul Magheru Tverskaya Knez Mihajlova str. Aupark/Avion Preciados Portal de l’Angel Colon Biblioteksgatan Kungsgatan Bahnhofstrasse Rue de Rhone Abdi Ipekci New Bond Street Buchanan Street Northumberland Street Market Square Bullring Commercial Street
Prime Retail Rent 2005 (€ m²) 1,900 1,250 1,550 650 1,240 1,950 2,150 500 900 1,400 9,000 1,800 1,700 2,050 2,650 3,000 2,450 2,250 2,400 1,200 6,500 2,150 2,150 1,350 850 300 600 1,650 1,350 1,850 720 1,140 750 850 2,750 720 500 2,100 2,100 950 1,150 800 2,900 1,900 950 7,900 3,400 4,850 4,550 4,900 4,700
Source: King Sturge
NB Figures for UK, France and Ireland refer to zone As.
31
Prime Retail Rent 2006 (€ m²) 1,900 1,500 1,600 780 1,240 1,950 2,550 550 900 1,400 9,000 2,000 1,800 2,460 2,650 3,000 2,450 2,250 3,000 1,450 8,500 2,250 2,150 1,350 850 300 630 480 1,750 1,350 1,890 960 1,020 750 1,450 2,750 960 540 2,140 2,100 1,050 1,360 800 3,200 2,710 950 8,300 3,650 4,900 4,550 4,900 4,700
Prime Retail Rent 2007 (€ m²) 2,040 1,580 1,450 1,440 1,400 1,950 2,550 600 960 1,700 9,500 2,200 1,800 2,400 2,700 3,120 2,520 2,400 3,600 1,450 8,500 2,500 2,400 1,350 900 780 630 500 2,200 1,350 2,140 1,020 1,020 720 1,450 2,750 960 540 2,160 2,160 1,380 1,420 800 3,310 3,010 1,160 8,350 3,950 5,150 4,750 5,150 4,900
Prime Retail Rent 2008 (€ m²) 2,400 1,625 1,200 1,440 1,200 2,040 2,550 600 1,200 1,700 10,000 2,200 2,000 2,760 3,000 3,120 2,520 2,450 3,600 1,800 9,150 2,700 2,700 1,500 1,100 720 630 500 2,300 1,750 2,000 1,200 900 600 1,680 3,150 1,440 540 2,850 2,650 1,550 1,460 1,100 4,000 2,500 1,200 8,850 3,840 4,870 4,425 4,800 4,500
Trend up up down stable/up down up stable stable up stable up stable up up stable/up stable stable up stable up stable/up up up up up down stable stable up up down up down down up up up stable up up up stable up up down stable/up up stable stable stable stable stable
King Sturge: European Retail Property
Table 9 – European prime retail yields 2005 - 2008
Country
City
Prime Prime Prime Prime Investment Investment Investment Investment Yields 2005 (%) Yields 2006 (%) Yields 2007 (%) Yields 2007 (%) Forecast Trend
Austria
Vienna
5.00
5.00
5.00
4.50
stable
Belgium
Brussels
5.00
4.50
4.25
4.25
stable
Croatia
Zagreb
-
-
6.50
6.50
stable
Cyprus
Nicosia
-
5.00
4.75
4.75
stable
Czech Republic
Prague
7.00
6.50
5.00
5.75
up
Denmark
Copenhagen
4.50
4.25
3.75
4.25
up
Estonia
Tallinn
10.00
9.00
7.50
6.50
stable
Finland
Helsinki
6.00
5.75
4.75
5.00
up
France
Paris
5.00
4.50
4.00
4.25
up
Germany
Frankfurt
5.00
4.50
4.50
4.50
stable/up
Greece
Athens
6.50
6.00
5.00
5.00
stable
Hungary
Budapest
6.75
6.00
5.75
6.25
up
Ireland
Dublin
3.25
3.00
3.00
3.00
stable/up
Italy
Milan
4.75
4.50
4.25
4.25
stable/up
Latvia
Riga
11.00
9.50
7.50
6.00
stable/up
Lithuania
Vilnius
9.00
8.00
6.25
6.75
up
Luxembourg
Luxembourg
5.00
5.00
4.50
5.00
up
Netherlands
Amsterdam
5.25
5.00
4.50
4.00
stable
Norway
Oslo
7.00
5.50
4.50
5.50
up
Poland
Warsaw
7.00
6.00
5.25
5.50
up
Portugal
Lisbon
7.00
6.50
6.25
6.00
stable
Romania
Bucharest
12.00
8.00
6.50
6.50
stable/up
Russia
Moscow
12.00
10.50
10.00
10.00
stable
Serbia
Belgrade
-
-
7.00
6.50
down
Slovakia
Bratislava
8.50
8.25
6.50
6.50
stable
Slovenia
Ljublijana
10.00
8.50
8.00
8.00
stable
Spain
Madrid
5.00
4.50
4.50
4.75
up
Sweden
Stockholm
5.00
4.50
4.00
4.25
up
Switzerland
Zurich
5.00
5.00
4.25
4.00
stable/up
Turkey
Istanbul
10.00
10.00
7.00
7.00
stable
UK
London
4.25
4.00
4.00
5.50
up
Source: King Sturge
NB Prime investment yields may refer to shopping centres or high street units
The figures we provide were collated to reflect figures at the end of June 2008. They come with the caveat that there may have been considerable movement (invariably outward) since then.
the virtually uninterrupted yield compression in countries such as the Czech Republic, Poland and Hungary. This trend has reversed over the past year, with each witnessing some degree of correction. The evidence to date suggests that Poland has thus far proved the most resilient of the three.
Due to the well-documented effects of the credit crunch, yields have eased in most mature European markets – certainly the UK, but also France and Scandinavia, albeit to a less extreme degree in the latter. Germany initially stood relatively firm, but it too has since succumbed to outward movement.
Outward yield movement is not universal across every European market – some are stable, whilst others are still hardening. However, the bearish view is that this is only on account of time lag and that most, if not all, will ultimately bow to the inevitable.
CEE has certainly not proved immune. One of the key investment stories of recent years has been
32
Investment - flow or trickle?
most other Western European markets. With debt and financial markets suffering, property values collapsing and transaction volumes drying up (or disappearing completely), estimates suggest that out-turn figures for 2008 may be around 25% down on 2007. This figure may even prove conservative on the upside.
This time last year, we were reporting record volumes of investment into European real estate for 2006. Much has, of course, changed since then. But for all the negative headlines, the figures for 2007 were not as atrocious as may be expected. Jones Lang LaSalle (JLL) reported that transaction volumes across the continent reached a massive €244.1 billion in 2007, a marginal 4% decline on the previous year. Cross-border investment accounted for 63% of this volume. Although the UK saw volumes fall by 22%, other nations continued to witness significant growth – France (+25%), Germany (+6%) and CEE (+34%).
Again, these trends in all commercial property are mirrored in retail. Figures from CBRE and Property Data show that the total value of European shopping centre transactions actually increased in 2007, albeit marginally (+3%) to €26.5 billion. Perhaps surprisingly, the UK retained its position as Europe’s largest and most liquid shopping centre investment market, with volumes increasing by 14% to over €9 billion. However, this is still someway short of €11.3 billion reported back in 2005. Also, it is vital to recognise that 2007 was a year of two halves and that the sharp fall-off in the second half is much more indicative of current trends.
The top-line figures obviously do not tell the full story, namely that of a dramatic slowdown in the second half the year that has accelerated even further in 2008. The UK may have felt the pain first, but evidence points to this now filtering through to Table 10 – Shopping centre investment by country 2005 - 2007
Shop Cen Investment 2007 (€ m)
%
1
9,089.1
34.3%
1
2
4,269.6
16.1%
2
4.7%
6
2,241.3
8.5%
3
1,977.1
7.7%
4
1,625.7
6.1%
4
8
1,403.3
5.5%
5
1,527.5
5.8%
5
7.2%
4
2,428.4
9.4%
3
1,308.5
4.9%
6
96.0
0.4%
14
1,038.5
4.0%
8
981.1
3.7%
7
Netherlands
848.5
3.6%
6
659.9
2.6%
10
818.6
3.1%
8
Hungary
246.5
1.1%
12
-
-
-
691.0
2.6%
9
Romania
-
-
-
517.0
2.0%
11
676.0
2.6%
10
Finland
62.3
0.3%
17
470.8
1.8%
12
647.0
2.4%
11
Portugal
257.4
1.1%
10
274.3
1.1%
15
470.0
1.8%
12
France
1,048.3
4.5%
5
1,052.0
4.1%
7
441.6
1.7%
13
Ireland
40.0
0.2%
18
1,034.9
4.0%
9
327.8
1.2%
14
-
-
-
145.0
0.6%
19
306.6
1.2%
15
Denmark
90.0
0.4%
15
311.0
1.2%
13
242.0
0.9%
16
Belgium
191.0
0.8%
13
267.2
1.0%
17
230.5
0.9%
17
Czech Republic
694.6
3.0%
9
280.3
1.1%
14
209.2
0.8%
18
Austria
250.0
1.1%
11
208.8
0.8%
18
171.9
0.6%
19
Slovakia
75.0
0.3%
16
-
-
-
162.5
0.6%
20
-
-
-
-
-
-
61.5
0.2%
21
Other
726.0
3.1%
355.2
1.4%
-
-
Total
23,250.0
100.0%
25,733.7
100.0%
26,499.0
100.0%
Country UK Germany Italy Poland Sweden Spain Russia
Bulgaria
Luxembourg
Shop Cen Investment 2005 (€ m)
Shop Cen Investment 2006 (€ m)
%
%
11,300.0
48.6%
2,180.1
9.4%
1
7,940.6
30.9%
2
4,166.8
16.2%
812.7
3.5%
7
1,202.7
1,884.5
8.1%
3
769.9
3.3%
1,677.1
2005 Rank
Source: CBRE, Property Data, King Sturge
33
2006 Rank
2007 Rank
King Sturge: European Retail Property
Despite our ongoing misgivings about the quality of its retail supply, Germany remained the second largest shopping centre investment market in 2007, with volumes of €4.3 billion (+2%). One interesting feature of last year was a major upswing in Italian retail investment (+86%), elevating it to third in the investment ranking. It is unlikely that this is sustainable trend, as opposed to one-off annual spike (as experienced in Spain in 2006, before a 46% decline in volume in 2007).
Continuing a trend of recent years, the level of cross-border activity accelerated in 2007. Taking 2007 in isolation, the proportion of cross-border deals was around 63%. Between 1999 and 2007, cross-border deals accounted for 50% of the value of all European shopping centre transactions – some €69 billion. Excluding the UK (which, given its size, distorts the market as whole), the share of crossborder investment over the last seven years rises to 71% of the European shopping-centre market.
A number of other smaller, mature retail markets also benefited from a significant capital influx over the last year, including Finland (+37%) and Portugal (+71%). Whilst some of the more mature CEE markets eased off a bit, less mature countries continued to gain momentum, notably Romania (+31% to €676 million) and Bulgaria (+111% to €307 million). Russia generated volumes of nearly €1 billion again in 2007, although perhaps surprisingly, the figure was marginally down on the previous year. Evidently, the long term potential of Russia continues to be matched only by its unpredictability.
Table 11 – Shopping centre investment 1999 - 2007: Domestic v Cross-border
Shopping centre investment 1999 - 2007 (€million)
Romania
Fig 7– Shopping centre investment by country 2007
3.1% 3.7%
1,193.0
1,193.0
100%
389.9
389.9
100%
Poland
7,387.5
7,098.4
96%
Czech Republic
2,404.2
2,300.0
96%
Russia
2,115.6
1,913.4
90%
Hungary
1,763.9
1,563.9
89%
Italy
7,934.0
6,934.7
87%
Sweden
4,660.7
4,068.4
87%
Portugal
2,890.7
2,468.4
85%
10,013.1
8,451.7
84%
1,414.5
1,157.2
82%
Belgium 34.3%
4.9%
UK
Spain
Austria
955.7
726.8
76%
Germany
Russia
Finland
2,172.8
1,546.1
71%
Italy
Netherlands
Germany
12,985.6
7,791.1
60%
France
6,385.3
2,704.9
42%
Denmark
1,941.7
556.7
29%
63,397.2
16,943.6
27%
Netherlands
4,051.5
822.6
20%
Ireland
2,213.1
136.0
6%
136,269.9
68,767.0
50%
Poland
5.8% 6.1% 8.5%
16.1%
Crossborder share (%)
Greece
Spain 17.5%
Crossborder shopping centre investment 1999 - 2007 (€million)
Other
Sweden
UK
Total
Source: CBRE, Property Data, King Sturge
Source: CBRE, Property Data, King Sturge
Taking a look over a longer time period, Poland has already established itself as one of the main retail investment markets in Europe. In 2005, it witnessed the third highest level of shopping centre investment, behind only the UK and Germany. These volumes have been very consistent since, such that Poland has ranked fourth on this measure over the last two years. Inflows of €1.6 billion in 2007 expanded total volumes to €7.4 billion since 1999.
In around a dozen countries, the level of overseas investment accounts for more than three quarters of all shopping centre investment. Not surprisingly, the proportions are highest in CEE countries, particularly Romania, Poland, the Czech Republic and Greece. Russia is mainly led by foreign finance, although there is also a degree of localised investment. At the other end of the scale, the most ‘indigenous’ markets are Ireland, the Netherlands, UK and Denmark.
34
Map 4 – Shopping centre investment 1999 - 2007: Domestic v Cross-border Shopping centre investment 1999 to 2007 Cross border investment (%) Domestic investment (%)
Finland 71% 87%
29%
13%
Sweden Russia
6% 94%
90%
Denmark
Ireland 27%
71%
73%
Netherlands 20%
United Kingdom
80% 82%
Belgium
42% 58%
Poland 60%
4% 96%
Germany
4%
Czech Republic 76%
15%
16%
Spain
89%
Austria 24%
Hungary
Portugal 84%
96%
40%
18%
France 85%
10%
29%
11%
100%
Romania
Italy 87% 13%
Greece 100%
Source: CBRE, Property Data, King Sturge
Of the “Big 3”, Germany is by far the most fluid cross-border market, with international deals accounting for 64% of shopping centre volumes in 2007. Although the base of these deals was relatively diverse (including Irish, French, Dutch and UAE investors), the most significant proportion were from the UK and the US.
However, anecdotal evidence points to further deterioration. Data for 2007 is at odds with virtually all current reports on the market. Robust data relating to 2008 will not be available for some time, but is unlikely to be anything like as positive as last year’s figures. Retail property market performance
This again leads us to re-emphasise the time-lag nature of these figures – although accurate, 2007 data may no longer reflect current market trends, nor even trends for the last 12 months. To date, the US and UK have been two of the countries most acutely hit by the global financial crisis. Any pain felt in these two key financial and property markets will readily transfer elsewhere as investment is pulled.
The headlines on the European retail investment market make grim reading. As the credit crunch takes increasing hold, anecdotal evidence invariably also points to a significant market slowdown. However, this is only partially borne out by official data. According to IPD’s Pan-European Property Index, retail was again the strongest performing property segment in the IPD Eurozone in 2007,
35
King Sturge: European Retail Property
generating a healthy total return of 12.8%, nearly three percentage points ahead of All Property.
Table 12 – IPD European retail returns (in €) 2007
However, there is a seismic contrast between the IPD Eurozone figures and those of All IPD Europe. The latter show that total returns for retail declined by 1.2% in 2007, thereby underperforming All Property, which reported positive total returns of 2.6%. The only property segment to generate lower returns than retail was industrial.
Fig 8 – IPD European property returns (in €) 2007 11.8
7.6 4.5
4%
2.6
2% 0% -1.2
-6%
-3.7 Retail IPD Eurozone
Office
Industrial
Denmark
4.9
7.8
13.1
Finland
6.7
8.5
15.8 22.4
France
5.6
15.9
Germany
5.7
1.1
6.8
Ireland
3.2
5.9
9.2
Italy
5.4
4.1
9.7
Netherlands
6.1
6.8
13.4
Norway
6.0
15.2
22.1
Portugal
6.1
8.4
14.9
Spain
5.5
8.2
14.1
Sweden
5.0
8.0
13.4
Switzerland
4.8
2.1
7.0
UK
4.4
-17.6
-13.8
IPD Eurozone
5.7
6.8
12.8
All IPD Europe
5.0
-5.9
-1.2
Source: IPD Pan-European Property Index Residential
All Property
All IPD Europe
Fig 9 – IPD European retail property total returns (in % per annum) 2007
Source: IPD Pan-European Property Index
25% 22.4 22.1
Why the massive differential between the Eurozone and Europe as a whole? The simple answer to this is one country, the UK. As has been well documented, the UK property market collapsed dramatically in the second half of 2007, such that total returns in retail for the year as a whole were down 13.8%. This came on the back of a 17.6% retrenchment in capital values. Given that 2007 was very much a year of two halves and the first was largely positive, it follows that the declines in the second half were even more severe than the IPD annual figures suggest.
20%
16.3 15.8 14.9
15%
14.1 13.4 13.4 13.1 12.8 9.7 9.2
10%
7.4
7.0
6.8
5% 0%
-1.2
-5% -10% -15%
-13.8
Fr
an
ce
-20% K
-4%
7.4 16.3
U
-2%
1.9 10.2
ay lg iu Fi m nl a Po nd rtu ga l Sp Sw ain N et ede he n rla D nds IP en D m Eu ar ro k zo ne Ita Ire ly la n A d Sw us itz tria er la Al Ge nd l I rm PD a n Eu y ro pe
6%
5.4 5.6
w
8%
Austria
Be
10%
9.9
9.8
9.2
Total Return (% pa)
or
12.8
12%
Capital Growth (% pa)
Belgium
N
14%
Income Return (% pa)
Source: IPD Pan-European Property Index
Ostensibly positive, there are still a series of concerns about these figures. One of the key ones is the general trend. Although positive in absolute terms, they are lower than previous years and probably herald a downward trend. Even excluding the dramatic decline of the UK from the equation, the IPD Eurozone figure is nearly two percentage points lower than the previous year. Of the individual countries, only Norway, Finland, Switzerland and Germany showed year-on-year increases (and in the last two cases this was off a low comparative base).
As the largest investment market in Europe (and also the country for which IPD collates the most data), the UK will always skew the total figure. On the surface at least, other countries appear to be faring much better. Total returns in retail in France and Norway were 22% in 2007, whilst Belgium, Finland, Portugal, Spain, Denmark and Sweden all recorded returns healthily into double digits. Other than the UK, only Germany reported a relatively sluggish performance, with total returns of 6.8% on the back of very marginal (+1.1%) increase in capital values.
36
of Ireland. Indeed, there is relative convergence in performance, with most countries forecast to achieve annual total returns between 5% and 7%. France, Finland and Sweden sit above this mark, albeit very marginally in each course.
The other, to some degree inter-linked, issue is that of timing. The full comparative dataset refers to 2007. Much changed during that year and even more has changed since. The wider economic slowdown only really started to take root towards the end of 2007 and in some countries, may not have filtered through to property figures. In other words, whilst presenting an accurate historic performance (for 2007), they do not reflect where the market is now.
Fig 10 â&#x20AC;&#x201C; Forecast retail total returns 30%
Historic 3 year
Historic 5 year
Forecast 2008 - 2012
25% 20% 15%
The general feeling is that the UK is a pre-cursor to the wider European market, rather than an isolated outlier beset with its own problems. Given its greater economic exposure to US markets, the UK has simply suffered more acutely and more rapidly than other European markets. The assumption is that there will be a ripple affect across Europe and this is already taking root. For example, note the dramatic turnaround in the Irish retail market. Total returns in retail in 2007 were a seemingly respectable 9.2%. However, this compared to 26.7% in 2006.
10% 5% 0%
K U
Sw Sw ede n itz er la nd
l
n
ga
ai Sp
rtu
Po
s
w ay
or N
ly
nd
Ita
rla
he N
et
Au
D
en
st ria m ar k Fi nl an d Fr an c e G er m an y Ire la nd
-5%
Source: Experian, King Sturge
NB UK refers to High Street
An annualised five year forecast obviously masks significant year-on-year swings and variances. As a general rule, the lowest annual figures are all recorded in 2008 (and in some cases 2009), with recovery setting in from 2010. For instance, the negative five year figure for Ireland is driven by a forecast collapse in returns in to -13.7% in 2008, followed by negative returns of -8.8% in 2009. As a market that has been over-heating for some time (to an even greater degree than the UK), it follows that any correction will be a sharp one. Slow recovery in Ireland is expected from 2010, a year after the UK. Most other European markets are forecast to follow this broad cycle, although few are predicted to plummet to the same depths as the UK and Ireland.
In summary, the UK property market experienced the pain first, but this pain is already starting to spread across many parts of Europe. Forecast returns The multi-million dollar question: how long will the downturn last and when will markets recover? Everyone has an opinion, but nobody knows for sure. In analysing future trends, we have again drawn on Experian data, in this instance its European Property Market Forecasts Services (EPMFS). These are produced for 14 key countries across Europe and around 40 cities/conurbations therein. Obviously underpinned by Experianâ&#x20AC;&#x2122;s European Regional Service data, its property forecasts are therefore consistent and congruent with our own analysis of economic markets.
Drilling down reveals a slightly less positive picture, with total returns driven primarily by income return rather than capital value growth. Indeed, the latter front is where the pain is likely to be felt most. Of the 14 countries covered, less than half are forecast to achieve annual average capital value growth over the next five years. Even in these cases, the figures are only marginal. Sweden leads the way (+1.3%), with Austria, France, Portugal, Switzerland and the UK in positive territory, but all less than 1%.
On the surface, forecasts for total returns do not appear overly bleak. There is obviously a marked deceleration in every European market, but over a forward-looking five year time horizon, all markets remain in positive territory, with the one exception
37
King Sturge: European Retail Property
That the UK should make this list at all in the current climate may seem a surprise. However, it does underline our belief in the need to look beyond the short-term. The out-turn figures for 2008 are forecast to be even worse than last year, with capital values slumping a further 10.4% (NB this figure refers to high street only, but is nevertheless indicative of the wider retail property market). Further declines in capital values are forecast in 2009, but these will be relatively modest (-1.8%). Thereafter, a sustained recovery is forecast from 2010. This endorses our view that the UK retail property market may be the first to suffer and will witness the sharpest correction, but will ultimately be the first to recover.
in the three years prior to 2008. This puts the current market into sobering perspective. On the positive side, the green shoots of a sustainable recovery are forecast to appear from 2009 across Western Europe. However, it is likely to be a very long time before there is a recovery to the levels of the halcyon days of the mid-2000s. With investment markets across Europe currently suffering and yields softening, rental growth is rapidly moving up the agenda. There is a school of thought believing that the collapse of the investment market will be followed by a similarly damaging derailment of the occupier market and that will delay any recovery even further.
Fig 11 – Forecast average capital value growth
In the context of the retail market, the current economic downturn will inevitably place great strain upon the retailers themselves. With consumer spending (their very lifeblood) under pressure, it follows that trading will become much tougher. Conventional wisdom suggests that many retailers will effectively ‘batten down the hatches’ and forego expansion programmes during difficult times, resulting in a significant reduction in occupier demand. At the same time, some retailers may offload some of their store portfolios, whilst some others may enter administration or cease to exist altogether. Either way, if this happened to a significant degree, it could undermine occupier markets.
20% 15% 10% 5% 0% -5% Forecast 2008 - 2012 K
NB UK refers to High Street
What of trends across the other countries over the 2008 – 2012 timeframe? Experian’s forecasts suggest that capital values will decline in most countries in 2008, with the exceptions of Sweden, Denmark, Switzerland and Austria. In the case of Denmark and Austria, this is essentially a time-lag delay, with capital values subsequently going into decline in 2009 and 2010 respectively. Sweden and Switzerland are the only two countries where capital values are not forecast to go into negative territory for at least one year over the next five years.
Fig 12 – Forecast average annual rental growth 2008-2012 (%pa) 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5%
K
nd
U
en
la
ed
er
itz
Sw
l
in Sw
ga
Sp a
rtu Po
s
ay w
or N
ly
nd
rla
he
nd
Ita N
et
an y
la
Ire
ce
m
an Fr
er G
k
d
ar m
Au
D
In the case of Switzerland, year-on-year capital value increases will be marginal, with Sweden appearing more robust. However positive a 1.3% capital value annual increase may appear in the current climate (and, indeed, relative to other countries), it does pale in comparison to the period before the downturn. Annual capital value growth in Sweden was 12.2%
en
st ri
a
0% an
nd
U
itz
er
la
n
en ed
Sw
Sw
l
ai
ga
Sp
rtu Po
s
ay w
or N
ly
nd
Ita
rla
he N
et
y
nd
an
Ire
la
ce
m
an Fr
er G
k
d
ar
an nl
Fi
ria st
m
en
Au
D
Source: Experian, King Sturge
nl
Historic 5 year
Fi
Historic 3 year -10%
Source: Experian, King Sturge
NB UK refers to High Street
Although the pressure on retail occupiers is mounting for a host of reasons, history has shown occupier markets to be fairly resilient. Forecast
38
from Stuttgart, Hamburg and especially Berlin, all of which have experienced negative rental growth in recent years. A sustained reversal of this trend (as is forecast) will be welcome news to the many investors who have pumped capital into these areas.
figures from Experian support this view. For all the turmoil in the wider property market, average rental figures are forecast to hold up fairly well over the next five years. That said, there is forecast to be a marked deceleration in rental growth in most countries over the next five years, relative to the previous five. There is evidence of cooling in most markets, particularly in France (annual average growth of 2.8% over the next five years versus 5.0% over the previous five), Ireland (2.2% vs 8.1%) and Spain (1.9% vs 7.1%).
In last year’s report, we undertook a relatively crude piece of analysis, comparing retail investment levels to forecast total returns. The key conclusion to arise from this analysis was that significant levels of investment were being channelled into low-return areas with limited growth prospects, the key one being Germany. We suggested that this trend may have been based on a simple herding instinct on the part of investors, rather than a measured strategy.
Two countries buck this deceleration trend – Italy and Germany. Average annual rental growth of 3.6% is forecast in Italy over the next five years, the highest rate of growth of all the countries covered. Given the relatively lacklustre state of the Italian retail market generally, we would suggest that this is primarily a by-product of historic undersupply of modern floorspace.
The original analysis was conducted at a time when the market was relatively awash with capital and yields were still contracting. A year on, the world has changed substantially. Access to capital has diminished and yields are softening. In many respects, tightening of the market has levelled the playing field. Likewise, forecasts have been revised and there is now much greater convergence between predicted returns in individual countries.
6
7,000
5
6,000
4
5,000
3
4,000
2
3,000
1
2,000
0
1,000
-1
0
-2
In repeating the analysis this time around, the messages are less clear-cut. It is possible to argue that Sweden and Finland warrant greater attention from would-be investors, although they did attract respective levels of €1.5 billion and €647 million in 2007. Arguably the biggest gap between reported investment levels and forecast performance is in France, which is forecast to achieve annual total returns of 7.2% over the next five years, yet attracted just €442 million in shopping centre investment in 2007.
%pa
7
8,000
U K
8
9,000
Ita N ly et he rla nd s Po rtu ga l Sp ai n Sw ed en
10,000
Au st ria D en m ar k Fi nl an d Fr an ce G er m an y Ire la nd
�m
Fig 13 – Shopping centre investment v Forecast retail total returns
2007 Shopping centre investment (lhs) Forecast annual average total return 2007-2011 (rhs)
Source: Experian, CBRE, Property Data, King Sturge
The case of Germany is perhaps more interesting. In the past, retail rental performance in Germany has been pedestrian at best – over the last five years, average rents have grown by just 0.4%. Although a forecast growth rate of 1.5% is steady rather than spectacular (it is below both the UK and France), it represents a positive trend. As befits one of the largest geographic nations in Europe, Germany witnesses significant regional variations in performance. Of the major cities, Frankfurt (+1.8%) and Munich (+1.6%) are above national trend. However, a more telling story emerges
But to say France is a missed opportunity is, of course, something of an over-simplification. The volume of deals is likely to be constrained as much by the lack of stock in which to invest as oversight on the part of investors. As markets tighten, this is becoming a more universal backcloth. Two years ago in a benign market, the focus was on identifying the hotspots and addressing the question of where to invest. Nowadays, there is generally far less choice.
39
King Sturge: European Retail Property
terms and on a per capita basis, is only behind small nations, such as Norway. Yet it has one of the most aggressive new floorspace development pipelines, with over 1 million m² coming onstream in 2008 alone. With a depressed retail market to boot, this floorspace is being successfully delivered, largely fully-let.
In a much more challenging market, where capital is much harder to come by and fewer and fewer assets are coming to the market, investors have far less scope to be selective. In other words, investors can only work with the few opportunities that do arise. Investment – two key options The fact that the investment market in Western Europe has collapsed has been a difficult pill to swallow. For many under a certain age, this is the first time they have witnessed at first hand a collapse in values, where investment opportunities are few and far between and yield shift is by no means guaranteed. For the more pro-active, this fundamentally leaves two key options: • continue to explore investment opportunities in less mature markets (essentially CEE) • actively create yield shift through astute asset management (rather than merely try to buy it)
Varna Towers, Bulgaria
Both carry timeframe implications. Those looking only at the short term are likely to favour the former option, which may provide more opportunity for “quick wins”. The second option is much more a long-term play.
In our opinion, it is wrong to dismiss a market as ‘saturated’. Markets do sometimes need to pause for breath after a heavy phase of development, but retail is a fast-moving market, subject to evolutionary but constant change. As retail dynamics play out, retail assets likewise need to evolve – some will prosper, others will lose out. In markets that are constantly moving, it is short-sighted to assume that retail property can simply stand still.
New international markets The old adage is that the further east you go in Europe, the greater the opportunity. Little wonder that there has been something of a retail gold rush across CEE over the last decade. Whilst many of the ‘easy’ opportunities may now have been exhausted, we remain firm in our view that CEE remains a fertile hunting ground. But markets have become undeniably more sophisticated. The three largest economies of CEE (Poland, Hungary and the Czech Republic) all witnessed a massive wave of retail development in the late 1990s and early 2000s. This lead many to believe that these markets were saturated. Market saturation is very much a subjective assessment, but can markets ever really be saturated? The UK is a strong case in point. Arguably Europe’s most mature retail market, it already has the highest volume of modern retail floorspace in absolute
Dalmatia, Croatia
To this end, development opportunities must still exist in the three largest CEE countries. The pace of development in the past is also translating into a more fluid investment market. In very crude terms,
40
the more modern retail stock there is, the more there is to trade (with the obvious caveat of financial market liquidity). The markets are obviously a lot more mature than they once were and yields have hardened accordingly, but they are not exhausted.
programme. Countries such as Romania, Croatia, the Baltic States and most certainly Russia fall into this category. It seems a fair assumption that these countries will follow a similar path to their ‘Big CEE 3’ forerunners, with heavy development gradually graduating to more fluid investment markets, the green shoots of which are already in evidence.
Fig 14 – CEE -the transition from development to investment
DEVELOPMENT
Bulgaria Ukraine
Croatia Serbia
Nor does it end there – there are a whole raft of other countries slowly entering the radar screen – Serbia, Bulgaria, the Ukraine any many other former CIS states. Many of these will evolve in the same way as their more celebrated peers.
INVESTMENT
Baltic States Russia
Slovakia
Romania
Czech Republic Hungary
Realistically, no market is completely insulated from the current market turmoil, but many of the CEE nations are more immune than their counterparts in the west. The key destabilising factor for them is fall-out of Foreign Direct Investment (FDI) from the large economies in the west (eg US, UK, Germany). To some degree, this is inevitable, but at the same time should not detract from strong growth in
Poland
Source: King Sturge
Similarly, there are a lot of CEE markets further down the maturity curve. Crudely speaking, many of these are where Poland/Hungary/Czech Republic were 5 – 10 years ago – in the midst of a heavy development
Nis, Serbia
41
King Sturge: European Retail Property
Assessing multiplier effects of new tenants eg if retailer X came to the scheme, would/could that also entice retailers X, Y and Z? Managing potential retailer relocations and unit aggregations/subdivisions.
consumer markets, a much less fickle and more sustainable economic bedrock. In short, CEE may not be the ‘final frontier’ it was once considered and much has changed, but opportunities still exist for the canny and the shrewd.
• Maximising space use – ensuring highest proportion of floorspace is to selling space, although not to the overcrowding and the detriment of circulation.
Proactive asset management Ordinarily, effective stock and site selection ranks very highly in our ‘criteria for success’. This has not diminished in any way but is increasingly falling by the wayside in the current economic climate. In short, opportunities are fewer and farther between, such that there is far less scope to pick and choose.
that the devoted point of shopper
• Extension and expansion – exploring the feasibility of redeveloping the scheme to incorporate more selling space. Evaluating this from both a capacity (ie consumer) and occupier demand perspective and factoring in planning implications. • Investment in infrastructure and fabric – maintaining the quality of the scheme’s décor and allocating appropriate budget to the constant upkeep of “intangible” sections of the proposition eg lighting, escalators, flooring, street furniture, toilets etc.
On the other hand, proactive asset management is as important in a downturn as it is in more benign times, indeed more so. We formulate our ‘blueprint’ for effective asset management around Eight Pillars – these are the fundamentals, rather than an exhaustive list.
• Addressing non-retail uses – leisure can be an important element in many retail-led schemes, especially food courts. Although space-intensive and producing lower rents, these downsides can be offset by increased footfall and longer dwell times. The leisure offer needs to be tailored to complement that of retail.
Fundamentals of effective asset management include: • Optimising tenant mix – ensuring that the anchor tenants and other occupiers meet the aspirations of the catchment population. Constantly reviewing which new tenants could improve the draw of the scheme. Assessing rent implications of new tenants and ensuring covenant strength.
• Scheme marketing – undergoing a constant programme of customer market research to develop a better understanding of their needs and aspirations. Developing general marketing initiatives and targeted customer (and catchment non-customer) mailings.
• Monitoring changing space requirements – as retail markets evolve, retailers’ space requirements change. As they broaden their product offer, some retailers (eg in the UK, Next, H&M, New Look, Primark) struggle to trade from their existing units and need to upsize. Conversely, others (eg, again in the UK, Boots, WH Smith, Woolworths) may have surplus space. In the former case, it may be possible to knock through unit walls to create larger units; in the latter, to subdivide larger stores to create additional units. Relocations may also be an appropriate solution.
Fig 15 – Eight Pillars of Retail Asset Management
Source: King Sturge
42
SCHEME MARKETING
ADDRESSING NON-RETAIL USES
INVESTMENT IN INFRASTRUCTURE / FABRIC
EXTENSION AND EXPANSION
MAXIMISING SPACE USE
MANAGING OCCIPIER CHURN
• Managing occupier churn – minimising the number of voids and periods of store vacancy.
MONITORING CHANGING SPACE REQUIREMENTS
OPTIMISING TENANT MIX
EIGHT PILLARS OF RETAIL ASSET MANAGEMENT
Property markets are immeasurably more difficult now than for many years. But for all the turmoil in global financial markets and the knock-on effects in consumer and property markets, not much has actually changed on the ground â&#x20AC;&#x201C; people still need and want to buy goods and therefore need retail outlets. These need to correspond to these aspirations as effectively as possibly. Retail property is a key facet within this.
Finances aside, what really has changed over the last couple of years is perception. And, to a degree, expectation. When the market was bullish, yield shift was virtually guaranteed. This is no longer the case. Yield shift now has to be actively created, hence the more pressing need for much more proactive asset management. A challenge, but not an insurmountable one.
43
King Sturge: European Retail Property
Contacts Stephen Springham - Retail & Leisure Research T: +44 (0)20 7087 5503 E: stephen.springham@kingsturge.com Richard Fiddes - European Managing Partner T: +44 (0)20 7087 5320 E: richard.fiddes@kingsturge.com Mark Barnes - Central & Eastern Europe Retail Co-ordinator T: +44 (0)113 235 5220 E: mark.barnes@kingsturge.com
All data contained in this report has been compiled by King Sturge LLP and is published for general information purposes only. While every effort has been made to ensure the accuracy of the data and other material contained in this report, King Sturge LLP does not accept any liability (whether in contract, tort or otherwise) to any person for any loss or damage suffered as a result of any errors or omissions. The information, opinions and forecasts set out in the report should not be relied upon to replace professional advice on specific matters, and no responsibility for loss occasioned to any person acting, or refraining from acting, as a result of any material in this publication can be accepted by King Sturge LLP. Š King Sturge LLP October 2008 This publication is printed on recycled, post-consumer fibre, totally chlorine free paper produced from sustainable stock. FSC certification.
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