European retail real estate investment volumes reach €6bn in Q3 2012

Jones Lang LaSalle reports retail real estate investment picked up markedly in Q3 2012, following the subdued volumes experienced in the first half of the year.

Preliminary analysis suggests that direct investment in retail real estate for Q3 is in the region of €6.0bn, up from the Q2 2012 volume of €3.9bn. Year to date volumes are estimated at €13.0bn, in comparison with €23.3bn in the first three quarters of 2011, and the five year Q1-Q3 average of €15.4bn.

Geographically, as in the first half of the year, the majority of activity remains focused on the large, liquid markets of the UK, Germany and France which together transacted 75% of total volumes.

The UK enjoyed a particularly strong quarter, which included the purchase of Festival Place in Basingstoke by TIAA-CREF from Grosvenor Festival Place Fund for €350m.

Adrian Peachey, Head of Retail Capital Markets UK, commented: “There is still plenty of international equity seeking prime product in the UK, which is supporting yields. Supply of prime product, however, remains limited, which is persuading equity buyers to exploit current pricing levels outside super prime. The evidence this quarter is that investors are starting to expand their horizons in the UK, in particular by targeting good quality schemes in regional towns. Supply may be boosted in the final quarter by some reweighting of institutional portfolios, and an increase in distressed debt sales by banks.”

Across Europe, on-going Eurozone uncertainty is still at the forefront of many investors’ minds, which has translated into weaker demand for real estate in many markets, softer yields and prolonged deal execution.
Looking forward, Q4 has started positively, with Norges Bank Investment Management purchasing a 50% stake in Meadowhall shopping centre (UK) and there are several other large transactions pending across Europe.

Our estimate for 2012 is that year end volumes will be between €18bn and €20bn, broadly in line with the five year average of €21bn.