LUXEMBOURG / Retail Q2 2023

No retail investment transaction observed in Q2

Only one investment transaction was observed in the retail segment since the beginning of the year. An Out-of-Town transaction between private investors of 2,3 MEUR was recorded in Differdange at a yield around 5.5%.

As in the rest of Europe, the investment market is currently experiencing important turmoil and very few transactions are recorded. Indeed, uncertain economic context, successive interest rates hikes from the European Central Bank and difficult financing conditions limit the number of transactions. Luxembourg is no exception as we only record one investment transaction in the office sector this quarter, highlighting investors’ cautiousness and difficult financing conditions.

This situation is expected to last up to the end of 2023 and we should assist to a certain normalisation in the course of 2024 though a complete recovery on the investment market is not foreseen before 2025.

No changes in prime yields in Q2. Further uptick expected before year-end

To counter inflation in the Eurozone, the European Central Bank continue to raise its interest rates, the latest one dating back from June 2023 The main interest rate currently stands at 3.50%. As inflation seems to ease, the situation regarding interest rates should stabilise in the coming months. However, the pressure on European property values is evident. Indeed, prime yields are rising across Europe in every market sectors.

Prime yields witnessed no change this quarter. They stand at 4.15% in the High Street segment, its highest level since 2015. Further increase are expected and yields should stand around 4.30% before year-end. Stability is foreseen all along 2024 and 2025. As bond yields are expected to decrease as from 2026, prime yields should follow the same curve and reach 4 20% in 2026

As no transaction has been observed in the Shopping Centre and as this specific asset class is increasingly illiquid in the current context, we can only estimate prime yields around 6.40% at the time being. They should follow the same path than the Main Streets in the coming months, so observing a slight increase this year and a downward movement as from 2026. Same trend is observed in the Out-of-Town segment with prime yield around 6.20% this quarter and slight uptick foreseen before year-end. As such, prime yield should reach a level around 6.40% and then remain stable in 2024 and 2025 before experiencing gradual compression as from 2026.

Retail investment volumes (in MEUR)

Prime yield by segment (in %)