“Investors are purchasing a lot, but are not doing so blindly“

The considerable interest among investors in retail parks and specialist retail space continues this year, for want of alternatives and because investors consider it largely immune from the effects of online sales due to its high contribution to local infrastructure. Yet not every retail park or specialist retail property is able to meet the purchaser’s expectations. Sustainable rental income and therefore location and property quality is being subjected to more intense scrutiny.

The start to the 2017 real-estate investment year was remarkable and set a trend for the year ahead. According research by real estate consultants CBRE, in the first three months of this year 3.8 billion euros were invested in the acquisition of German retail properties, 144 percent (2.3 billion euros) more than in the comparable period during the previous year. It is just as remarkable that retail parks and specialist stores are very high on investors’ lists, and therefore attract more capital than traditional shopping centres or inner-city retail premises. With a volume of 1.9 billion euros, retail park and specialist stores contributed 48 percent of the quarterly result. However only 799 million euros were invested in shopping centres, corresponding to 21 percent.

The high amount of retail park and specialist retail space largely results from portfolio transactions. Despite this the numbers prove that this asset class remains popular with investors. “We are not noticing any change in demand either. Quite the contrary, it remains at its highest level” says Alexander Hoffman, managing director and partner in IPH Transact GmbH, responsible exclusively for the investment sector within the BBE/IPH group of companies. As a result, net initial yields remain under pressure. ”However, we have become used to gross yields of five percent being normal, nowadays, even in the retail park and out-of-town sector. In the area around Munich, the figures are already significantly below that”, reports Hoffmann. Investments for twenty times the annual rent will no longer be achievable for well-positioned and as-new retail parks. CBRE analysts are also able to report that lively investor interest in specialist and food retailer stores has led to further yield compression. For first-rate retail parks with long lease terms, the yields have fallen by 25 basis points to 5.5 percent. For supermarkets, also in high demand, prime yields fell by 10 basis points to 5.5 percent.

From an expert’s perspective, the monumental hype surrounding retail parks and specialist retail properties, derided for decades as “shoeboxes” is hardly surprising. Until now, retailers selling grocery and everyday products have suffered the least under the onslaught of the online-shopping industry. This does not, in itself, mean that every retail park and specialist retail property will survive the structural changes in the world of commerce. That is why investors are not putting blind faith in this asset class, as the high volume of transactions might perhaps lead one to believe. “Investors purchase cash flow because sustainable cash flow is king” says IPH investment expert Hoffmann. The reason for this in particular is the high level of equity in these transactions. In the case of core properties, this is often 50 percent or even more. Due to the greater risk, sustainable cash flow in due diligence is playing an ever greater role. “It is being scrutinised very closely whether rents that were achievable six or seven years ago remain realistic today, or whether there might be potential for a reversal”, reports Hoffmann. Despite the high pressure to invest, the view regarding the current and future income situation for real estate is becoming ever more critical.

Source: © Natee Meepian – shutterstock.com

Alexander Hoffmann

Tel: +49 89 55 118-195
E-Mail: hoffmann@iph-transact.de