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Angela Goodings

Retail therapy in 2014

European consumer and retailer confidence gathered pace in 2013, but this rosy scenario was derailed for some retailers who posted distinctly unfestive Christmas trading results.

European consumer and retailer confidence gathered pace in 2013, but this rosy scenario was derailed for some retailers who posted distinctly unfestive Christmas trading results. So what’s in store for 2014? Angela Goodings, Director of Research, summarises a few headline views on European and APAC retail markets:

"Across Europe, improving economic indicators will support opportunities for prime rental growth. Core European markets in the UK and Germany will see retail rents recovering as occupier and consumer confidence improves and consumers experience a return to real wage growth. Opportunities persist in southern European markets as prime capital and rental values are yet to recover, providing scope for lower yields. The rental recovery, however, will lag in non-core countries and a focus on prime assets is recommended in these cyclical markets.

Although weak economic growth implies risk for France’s retail market, the French consumer remains resilient with limited debt levels and a high savings ratio, alongside positive income growth. This will maintain spend and support retail assets. Investors should be aware in areas of oversupply, however, especially within the Île-de-France region where significant new retail space has completed recently.

We favour retail warehouse parks for their better value, good rental affordability and prospects for further sector maturity. In core markets such as the UK, bulky goods parks will benefit from the recovery in the housing market, which will drive retailer profits, store expansion plans and rental growth opportunities.

Retail is driven by local demand & supply characteristics, therefore micro-analysis remains essential. We continue to favour micro-locations driven by transport hubs, motorway service stations, and rail networks, in particular for catering growth opportunities. Second tier cities which have good micro-fundamentals will provide higher yielding assets with increased scope for valuation uplift. More suburban centres in major cities will offer opportunities in convenience retail as suburban locations tend to exhibit above average population and retail spending growth.

Expensive APAC markets are susceptible to re-pricing. Sydney, Osaka and Tokyo provide the best opportunities for valuation uplift through further yield compression. Rental growth remains strong across APAC, outperforming European rental returns with Hong Kong forecast to see the strongest rental growth in both city centre retail and shopping centre market. We favour exploring further retail opportunities in second tier cities where higher yields provide better value, but beware of lax planning controls and a potential for oversupply in the emerging markets.

Online retailing will continue to alter the retail landscape, although retailer expansion should persist in preferred locations. Adapting physical stores to embrace online technology will continue to ensure outperformance."

Angela Goodings

Angela Goodings

Associate Director of Research

Angela's biography