Direct investment in retail real estate in Europe - over 90% up

Direct investment in retail real estate in Europe during the first three quarters of 2010 reached €15.2 billion, over 90% up on the same period in 2009 (?7.8 billion) Investment volumes during Q3, the quieter period of the year, held steady against Q2 volumes and totalled ?5.0 billion. Ten deals of at least ?100 million were completed in Q3, most notably Unibail-Rodamco’s acquisition of seven Simon Ivanhoe shopping centres in Poland and France for ?715 million.

The UK, Germany and notably Poland together accounted for 80% of total investment volumes in Q3 (?4 billion). Whilst Poland has seen a healthy demand for retail real estate investment in 2010, a number of transactions did not complete in the first half of the year; however Q3 saw it leapfrog into third place behind Germany with the completion of Unibail-Rodamco’s acquisitions in Warsaw.

Agata Sekula, Head of CEE Retail Capital Markets, commented: “Due to the favourable macro-economic situation in Poland and positive retail sales (6.6% up in August 2010 y-o-y), investor interest in prime shopping centres in Warsaw and the regional cities of Poland has increased markedly. However, the time needed to complete a transaction has increased substantially with investors undertaking very thorough analysis of every aspect of the property in the due diligence process. Although only a few retail investment transactions have closed so far in 2010, including the landmark Unibail–Rodamco acquisition of the flagship Arkadia shopping centre in Warsaw plus Warszawa Wilenska shopping centre from Simon Ivanhoe, there are a number of other important deals in advanced negotiations that should finalise before year end or the first quarter of 2011.”

Germany continued to see increasing interest from international players to supplement the strong domestic market, which resulted in further yield compression during Q3 2010. The increasing availability of finance and the improving economic outlook continues to boost investment demand, with over ?700 million completed in Q3, including two Aldi sale & leaseback portfolios giving the supermarket operator over ?260 million from sales to Allianz Real Estate and MGPA.

Whilst the UK saw a significant increase in volumes transacted in Q3 this was due to the ?1.15 billion Tesco sale and leaseback deal; otherwise the UK has maintained consistency throughout the year, with approximately ?1.4 billion traded each quarter. Seven shopping centres traded in Q3 in the UK, notably Stratford Centre in London sold by Land Securities to Catalyst European Property Fund for just over ?100 million.

David Raven, Head of UK Shopping Centre Investment at Jones Lang LaSalle, said: “The vast majority of stock in the UK shopping centre market that has traded in 2010 is inferior in quality to 2009 which was characterised by a high volume of prime transactions. The fact that the relatively inferior quality stock has traded is further evidence of buyer sentiment improving. This theme is set to continue in the short term as the supply of prime stock coming to market is limited which should suggest prime yields will remain at their current levels or even harden.”

Raven continued: “Leveraged investors and particularly the raised Opportunity Funds have become more prevalent throughout the year and are likely to dominate buying activity in the final quarter of 2010 and into 2011 as long as they are able to secure debt from the lending banks. This buyer type will be of key importance for the vast majority of secondary stock which is anticipated to come to the market.”

Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with approximately $40 billion of assets under management.

In Russia and CIS Jones Lang LaSalle have offices in Moscow, St. Petersburg, Kiev and Almaty.

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