According to Savills, 2021 saw €32bn invested into Europe’s retail sector, which was down 5% yoy and -27% below the five year average. Retail assets also comprised just a 10% share of total commercial real estate investment activity in 2021, compared to 13% in 2020.
The convenience sector bucked the trend and continued however to drive activity last year, accounting for almost half of the total investment volume in the sector (€14bn).

Eri Mitsostergio, Director, Savills Research, comments: “Investors looking to meet higher return thresholds while managing income risk have discerned that retail parks and grocery stores are often located close to population centres, and are generally less exposed to changes in discretionary spending due to downturns or public health restrictions.”

As a result of this strong demand, prime yields have been moving in significantly in the food sector, says Savills. The stability and length of income streams makes this segment desirable especially for investors with long-term liabilities. Since 2019 the average prime supermarket yield has moved in by 40 bps to 5.3%.

Additionally, the last half of 2021 saw retail warehousing yields move in by 5bps on average to 5.43%. In the final quarter of the year Savills witnessed further yield compression for the best retail parks, with the average prime retail warehousing yield moving in to 5.16%. Conversely, prime shopping centre yields reached a high of 5.45% in Q4 2021, vs the last cyclical peak of 4.5% in Q3 2018. Savills notes that this is the first time that it has recorded average prime retail warehousing yields being lower than the average prime shopping centre yield.

In 2021, Savills reports that the UK, Germany and France, captured 72% of all retail investment activity. There are some signs of recovery in the UK, Italy and the Nordics, where retail turnover was higher compared to last year. The UK was up 46%, driven by investments in the retail park and food sectors, which exceeded €4.8bn.

“Food and convenience sectors will prevail in investor retail strategies once again in 2022,” suggests Leila Packett, Savills Regional Investment Advisory, Retail, EMEA. “Despite the inward yield movement trends, these two segments still provide higher initial yields and stable income streams. With opportunities for investment in the food sector becoming fewer and further between, this should shift even more capital towards retail parks and warehouses. The weight of capital in this market segment will lead to further yield compression.”

Since the pandemic, vacancies have been rising in city centres and some dated regional and urban schemes have become obsolete. The average high street vacancy has reached 14.5% and the average shopping centre vacancy 19.4% in Q1 2022.

“The surge in retail activity in the UK last year was driven predominantly by substantial discounts to justify the investment required for the complete re-purposing of such schemes,” says Leila Packett. “Local authorities have acquired town centre schemes for redevelopment purposes while private investors and end users have bought underperforming schemes with repositioning potential.”

Eri Mitsostergiou, adds: “The gradual recovery from Covid19 is leading to a revival of live shopping and socialising, which should support the industry’s revival this year. We expect more value-add opportunities to emerge and a big part of the retail stock requires active asset management, re-purposing and retrofitting to meet future decarbonisation targets. Convergence of buyer and seller pricing expectations will be the decisive factor to unlock opportunities.”