Shopping for clothes
We keep an eye on the Global Retail Attractiveness Index (GRAI), managed by German fund giant Union Investment, which tracks retail market in 20 countries across Europe, North America and Asia-Pacific. While it's always tricky to call a market bottom, there have been some encouraging movements of the gauge in a number of the market the GRAI tracks, worth noting here.
In 6 of the 15 EU countries that are components of the GRAI, a positive trend was noted in Q1, compared to Q1 of last year, while losses were moderate in the others except for a few Nordic outliers.
Olaf Janßen, head of property research at Union Investment, said: “Positive trends across European labour markets and retail sales that have been improving for some time in all 15 countries indicate recovery, and a likely return to pre-pandemic levels in these markets.”
With an index value of 100 points representing average performance, the retail index for Europe (EU 15) scored 111 points in Q1, unchanged since Q1 last year. But notably, there was an increase in the discrepancy first identified last autumn between highly negative sentiment among consumers and retailers on the one hand, and positive labour market data and inflation-driven sales on the other. Consumer sentiment (78 points) dropped sharply by 14 points, while retail sentiment (95 points) was down 12 points. However, the labour market rating (136 points, plus 9) and retail sales (133 points, plus 10) both improved.
In the EU-15 index, the biggest increases compared to Q1 2022 were seen in Italy, which climbed 7 points, and Poland, which added 6 points. Topping the country ranking were Poland (127 points) and the Czech Republic (122 points), followed by Portugal (116 points) and Germany (115 points). Next came France and Italy with 113 points each. The worst performers in Europe at the end of the first quarter of 2023 were Sweden and Denmark, with 83 and 86 points. The two Nordic countries also suffered the heaviest losses compared to the previous year, declining by 12 and 17 points respectively.
The GRAI is compiled every 6 months by market research group GfK, and is a combination of both sentiment and data-based indicators, reflecting both consumer confidence and business retail confidence. The index is based on the latest data from GfK, the European Commission, the OECD, Trading Economics, Eurostat and the respective national statistical offices.
German market contains investment losses
Meanwhile, the German investment market for retail real estate saw a relatively stable start in Q1, with transaction volumes down 9% to €1.7bn in the quarter, according to figures from JLL. That's 24% below its ten year average. In line with other asset classes, the number of transactions fell from 65 to 42 deals.
There were only two deals in the triple-digit millions - the pro rata acquisition of KaDeWe by the Central Group, and the increase in shares in various shopping centers by Deutsche Euroshop. But with a dearth of large transactions, these two deals made up more than half of the total volume in the quarter.
The dominance of these two deals also reflects the risk class and type of use across the deals done. Core accounted for 59% of the transaction volume, with core-plus accounting for 39%. Value-add made up only 2%.
In terms of types of use, department stores account for 49% of the market, ahead of retail products with specialist stores, retail parks and supermarkets, which together account for 22%, just ahead of shopping centers with a market share of 21%. Commercial buildings rounded off the field with 9%.
According to Sarah Hoffmann, head of retail investment at JLL Germany, "We're seeing robust demand in all types of use. For example, commercial buildings in prime locations are the focus of private investors, as the rental market here has proven particularly resilient despite the pandemic challenges... At the same time, we're seeing high levels of interest in German core and core-plus products from foreign investors, particularly French investors."
Accordingly, yield increases are modest. Retail parks are up 25 basis points to 4.15%, while individual specialist outlets are up 20 basis points to 5.10%. Shopping centers, meanwhile, remain constant at 5.00%.
In the high-street sector, too, the increase amounts to a maximum of 30 basis points. This is accounted for by front-runner Munich, which continues to have the lowest prime yield at 3.00%, followed by Berlin (3.10%), Hamburg (3.30%), Frankfurt (3.40%) and Düsseldorf (3.50%). Stuttgart and Cologne complete the field at 3.70% each.