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Angela Goodings

Retail: Opening for business

Angela Goodings analysis the European retail market in the light of CBRE's 2014 global survey measuring retailers' expansion plans.

As property markets have largely completed the process of re-pricing (aside from cyclical recovery opportunities within non-core Europe), the focus of investors has shifted from yield plays to rental growth opportunities. For the retail sector, rental growth plays are often focused on local level demand and supply characteristics but wider market trends such as retailer expansion targets also play a crucial role. CBRE have recently completed their 2014 global survey measuring retailers' expansion plans concluding that large scale store openings are now back on the agenda. 35% of retailers within their survey stated they were planning to open more than 40 stores in 2014, this compares to approximately 15% in 2013.

Germany remains a favoured target and comes in first place for retailer expansion plans with over 40% of retailers surveyed looking to open stores in 2014. As demand for Tier 1 cities intensifies and supply remains limited, retailers are moving out into second tier cities providing investors with good opportunities for rental growth without paying premium Tier 1 retail property yields. France was ranked second within the survey, a surprise given weaker economic implications and a market which remains difficult to access for retailers. Despite weaker economic growth, the French consumer remains resilient with limited debt levels and a high savings ratio, alongside positive income growth. Retail sales have remained relatively buoyant. However in France, weaker economic sentiment leads to retailer demand mainly focussed on prime assets.  

Representing APAC, China is ranked in fifth position with 22% of retailers surveyed targeting this country in 2014. Demographic trends and a shift to higher consumption continues to promote strong demand as Chinese retail sales are forecast to grow by over 12% p.a. over the next ten years. China benefits from both regional and international store expansion plans and demand is focused across Tier 1, 2 and 3 cities.

Whilst rental growth opportunities are returning to European markets following years of rental decline as a result of the GFC, Asian markets highlight a very different trend as rental growth is starting to moderate following years of double digit returns as these markets have matured. The below chart highlights five year rental growth expectations for prime retail markets where growth patterns amongst global markets have converged and strong rental growth opportunities can be found in both APAC and European markets.

With improved consumer sentiment, retailer confidence remaining high and store expansion plans firmly on the agenda, retail investors will benefit from competitive bidding and a return to rental growth in prime locations. But savvy investors who move away from prime assets and focus on second or third tier cities in the correct locations will have the advantage of benefiting from good rental growth opportunities but without paying premium prices. 

CBRE survey results

Source: PMA

Angela Goodings

Angela Goodings

Associate Director of Research

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