European Retail Sector Outlook 2024

TARGETED RETAIL SECTORS

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Similar to other real estate asset classes, pricing for retail assets has moved following the uplift in interest rates. Across major markets, the average shift in yields between Q1 2022 and Q3 2023 ranged from 45 to 60 basis points across various retail asset types. This shift is far less pronounced compared to other sectors, particularly logistics and industrial assets between 2021 and early 2023. Investor caution towards retail assets during the pandemic led to the expansion of yields for high streets and shopping centres, although retail warehouses, valued for potential repurposing opportunities and their intrinsic appeal as favoured retail destinations, experienced yield compression in several markets. Investor engagement in the retail sector has evolved in response to the surge in online shopping and the impacts of the pandemic. Investors are recognising positive trends in occupier activity, although they are wary of potential obstacles, particularly those affecting consumers.

Primarily, investors are directing their attention toward prime assets that possess attributes attractive to both retailers and shoppers. Additionally, they show interest in "essential" schemes, particularly the primary shopping destinations in areas with robust consumer demographic profiles. However, smaller centres in more challenging locations are currently less attractive to investors, as lingering economic and consumer challenges may disproportionately affect these areas and schemes. The capital actively pursuing retail assets throughout 2024 is primarily oriented toward value-add pricing and strategy. Investors are closely scrutinising vacancy levels, particularly given the prevailing economic uncertainties in the short term. Effective asset management strategies will play a crucial role in enhancing the value of retail assets. Many of these assets have lacked sufficient capital expenditure in recent years. Therefore, implementing well-planned tenant management strategies, coupled with enhancements focused on sustainability and community engagement should yield significant positive effects.

Effective asset management strategies will play a crucial role in enhancing the value of retail assets.

12 RETAIL OUTLOOK 2024

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