The decline in retail property investment is less pronounced

Investment in retail premises in Europe came to € 28.9bn year-on-year, down 41% vs. Q3 2022 on a rolling year basis.

"The last 12 months have seen investment being rebalanced between the different commercial real estate categories. This kind of shift hasn’t been seen in Europe for many years, and retail in particular is benefiting", remarks Patrick Delcol, Head of Pan European Coverage of Retail, Logistics and Hotels for BNP Paribas Real Estate. Indeed, the sector is gaining market share in relative terms, rising from 15% to 19% of overall investment between Q3 2022 and Q3 2023, while offices have slipped from 37% to 31% and logistics from 24% to 20%. Even though the broader context is still challenging, retail is once again the second most popular asset category in Germany and France for the first time since 2018.

The UK, Germany and France alone accounted for 60% of investment. The UK is also back in the pole position it relinquished to Germany in Q3 2022, thanks to swifter price adjustments and more opportunistic investors.

retail graph PR

Investment in the retail warehousing segment in Europe (France, Germany, United Kingdom, Italy, Spain and Poland) came to € 9.9bn year-on-year. This segment, down 31% vs Q3 2022, remains the most stable of the retail sub-segments. It accounts for half (50%) of overall investment in retail assets and is increasingly attractive to investors in all European countries.

The high street segment (France, Germany, UK, Italy and Spain) has seen the biggest year-on-year decline (-49%) with investment standing at € 5.4bn. However, this fall should be seen in perspective given the exceptional Q3 2022 figures. These even exceeded pre-pandemic levels, thanks mainly to major deals in Spain and Italy. Moreover, this figure did not include € 1.6bn in owner-occupier deals in France; these were deals by luxury giants seeking to invest in the most prestigious avenues in Paris to establish their brands.

Lastly, the shopping centre segment (France, Germany, UK, Italy, Spain and Poland) has seen a fall of 42% vs. Q3 2022, with investment of € 4.4bn.

Less pronounced yield expansion for prime retail assets

The rapid rise in risk-free rates in recent months has driven up prime yields, leading to repricing across all asset categories.

Retail prime yields started to expand in Q3 2022 and have continued to do so throughout 2023. This yield expansion is less pronounced than for other asset categories (office or logistics), as they already adjusted at the time of the health crisis in 2020.

Prime yields for retail warehousing and shopping centres remain very appealing throughout Europe and continue to attract investor interest. Taking all asset categories together, these are the segments that offer the best risk premium.

Prime yields for high street are still the lowest despite having widened in almost all countries. This situation mainly reflects the transaction dynamic in the luxury sector, which continue to squeeze the prime yield; it does not fully reflect the broader high street market.

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BNP Paribas Real Estate Press
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