Grocery-anchored retail keeps flag flying in beleaguered sector
While the brick-and-mortar retail sector is struggling badly with the repeated lockdowns and the inexorable rise of online retail, grocery retailing (Lebensmittelhandel, LEH) has increasingly been viewed by investors as an infrastructural pillar. And investors still see plenty of potential in grocery-anchored retailing, according to the latest study "The European Grocery Real Estate Market" by JLL and Union Investment.
During the period between 2016 and 2020, the share of real estate with LEH in the total European retail market increased from 6% to 22%. The solid performance of grocery during the pandemic has led to continued compression in net initial yields for high-quality existing properties in key European markets. It helps that the big food retailers are also considered to be tenants with strong credit ratings, making the banks more amenable to supporting the sector. The corona pandemic has only served to make food-anchored properties even more appealing, says the report.
The sector is compelling on two fronts: first, with long-term core returns for more risk-averse investors, and second, with value-add potential in properties with shorter leases or older existing properties coming to the market.
Over the past six years, investment in European grocery retail real estate has been relatively constant at around €4.5 billion per year. In 2020, however, the volume increased by more than 40% year-on-year to around €6.7 billion.
The established players are looking at plenty of food-focused real estate, says the study. Well-connected food retailers can attract new customers in growing metropolitan areas and thus compensate well for periods of economic weakness. Project developers are also increasingly focusing on converting large individual urban locations into logistics centers. According to the study's forecasts, the urban population in the main European grocery markets will grow most in Sweden (+14.7 percent), the Netherlands (+8.4) and France (+8.3) by 2035.
A recent study by researchers Bulwiengesa showed that the yield on Fachmarktzentren in Germany last year held stable at 2.4% to 3.3%.
Deal-making is brisk in the sector, with many of the better-known players jostling for position in the market. Just last week Holland Immo Group which invests via closed-end real estate investment funds for Dutch private investors, family offices and institutional investors, sold the retail portfolios of four of its German investment funds for €87m to Frankurt-based GPEP, acting on behalf of a German institutional investor.
Holland Immo said the purchase price reflected a premium due to the large size of the portfolio and the quality of the assets. The off-market deal involves 10 inner-city retail complexes in Berlin and a number of other cities. 100% of the 42 rental units with 33,000 sqm are leased, with the anchor tenants all big-name German food retail groups. The weighted average lease term (WALT) is about 8 years.
Dagmar Schuster, head of transaction and investment management at GPEP, said of the purchase, “This portfolio complements the existing portfolio with properties with a larger individual volume in very good condition. It strengthens the ongoing stable income of the investing fund and gives us further diversification in terms of tenant mix and geographical location.”
Originally the four funds had bought the assets between 2013 and 2015 from Ten Brinke Group. Holland Immo suggested it may dispose of further assets in the Fachmarkt segment from its five other German retail funds in light of the rising values in the sector.