European urban retail investment has been increasing, what is driving investors' interest?

14th December 2015

Continue to the other two articles in this edition of Global Outlook.

Risk and return in real estate: Lessons from the listed market.

Listed real estate data are a rich source of information. But how can it be use to analyse risk and return in the broader real estate market? Brian Biggs, Research Analyst, Grosvenor Group investigates in more detail. Click here to read more.

Postive economic outlook but divergence continues.

The global economy has continued to grow at a steady but underwhelming pace through 2015. What are the expectations for 2016? Graham Parry, Group Research Director, Grosvenor Group, shares his views. Click here to read more. 

There has been increased interest from investors in European urban retail, what is driving it?
The European economy is growing again and real GDP growth forecasts for the next five years are robust across most countries. In addition, a strong consumer recovery is underway with consumption levels above the 2007 peak in core markets such as France, Germany, the UK and Sweden while consumption is expected to rebound over the next few years in Italy and Spain.  Urban retail is a sector that is expected to fare well in Europe over the long term. Europe is a highly urbanised continent with over 350 million of its citizens (75%) living in cities and towns. Among these urban areas Europe has a collection of rich and growing cities. A fifth of the world’s top 100 wealthiest cities are in Europe. Europe’s leading cities are also forecast to have significant population growth over the next 15 years, with average annual growth three times higher than the national average. Many of Europe’s historic city centres have stringent planning restrictions on new development, which ensures capital preservation in key locations due to restricted supply.  Another reason is that urban retail has proven to be structurally resilient to the impact of e-commerce and the polarisation that it is causing. Changing consumer demands are reinforcing prime city locations, which complement online retail, while peripheral areas seem to be on a declining trend. This is reflected in the rationalisation of retailers’ store portfolios and their focus on fewer, leading locations in key cities.
What makes European cities so compelling to retailers?
Europe has a collection of vibrant cities that offer strong prospects in terms of growing dynamic economies as well as attracting significant tourist spending. These locations all have common characteristics: a world class retail and leisure offer; they are well connected internationally and nationally; and their cultural and historic significance means that they attract high numbers of tourists, supplementing already dense residential populations. Europe’s leading cities are major tourist hubs attracting on average over 5 million international tourists a year. Their appeal to both global talent and tourists means they have high footfall and retail spend, making them attractive locations for international retailers. >/dd>
What has the sector’s performance been and what is the outlook?
European urban retail has historically delivered strong returns, with prime markets returning c 14% p.a. over the last decade. Certain cities have significantly outperformed enjoying robust rental growth and strong investor demand. For example rental growth in London has risen sharply since 2009 as international retailers continue to want flagship stores in key locations such as Regent Street and Oxford Street. Meanwhile average rental growth for all UK high streets has been stagnant.  The most attractive cities are the focal centres for retail in their respective countries and have achieved average annualised real rental growth of 2.0% p.a. since 2001. These cities offer rental growth potential over the medium and long term but some like London and Paris are advanced in the current cycle. Some southern European cities like Milan and Barcelona are at a mid-point and others like Madrid are at an earlier stage in the cycle and could offer greater growth potential over the medium term. Overall expected returns from the sector average around 7% p.a. over the next ten years, predominantly driven by robust rental growth and well supported pricing.

View all Grosvenor contacts

Grosvenor Europe Disclaimer

Use of this Grosvenor Europe section of the grosvenor.com website (the “Grosvenor Europe Website”) is subject to the following terms and legal notices (“Conditions”).  You are being asked to agree to these Conditions because:  (a) you are accessing the Grosvenor Europe Website for the first time or (b) you are accessing the Grosvenor Europe Website from a different section of the grosvenor.com website.

The information in the Grosvenor Europe Website was prepared by Grosvenor Europe only for, and is directed only at, the limited categories of persons described under “LEGAL NOTICES” below.  The information in this Grosvenor Europe Website is not intended for the use of and should not be relied on by any other person.

Grosvenor Europe Limited is registered in England, with Company Number 04056191 and its registered office at 70 Grosvenor Street, London W1K 3JP.
This Grosvenor Europe Website contains general information about Grosvenor Europe and related entities and is intended for informational purposes only. The information contained on this Grosvenor Europe Website is not an offer to sell or a solicitation of an offer to purchase interests in any fund managed by Grosvenor Europe or a related entity, nor  is it intended to provide, and should not be relied on for, investment, tax, legal or financial advice.  Investors should seek applicable professional advice for their particular situation.  The information contained herein is a summary only, is not complete, and does not include certain material information, including potential conflicts of interest and risks associated with an investment with Grosvenor Europe and its related entities.

No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained in the enclosed materials, including hyperlinks or references to other sites, by Grosvenor Europe or its related entities, and no liability is accepted by such persons for the accuracy or completeness of any such information or opinions, to the fullest extent permissible by applicable law.  Users are responsible for evaluating the adequacy, accuracy, reliability, merchantability, non-infringement, and/or completeness of any information or the content available on this Grosvenor Europe Website or fitness for any particular purpose with respect to this Grosvenor Europe Website or any of its content.  The estimates, strategies, and views expressed herein are based upon past or current market conditions and/or data and information provided by unaffiliated third parties (which has not been independently verified) and is subject to change without notice. An investment with Grosvenor Europe is speculative and contains significant risks, including the risk of loss of some or all of an investment, and is intended only for sophisticated investors who meet certain eligibility criteria.  Such investments are not deposits or obligations of, or guaranteed or endorsed by, any bank and are not insured or guaranteed by any government or any other agency.

LEGAL NOTICES

Information displayed on this Grosvenor Europe Website may contain material that is interpreted as a financial promotion for purposes of the Financial Services and Markets Act 2000 of the United Kingdom (the “FSMA”).  Grosvenor Europe is not an authorised person for purposes of the FSMA, and accordingly, the communication of information on this Grosvenor Europe Website is provided only for and is directed only at persons in the UK reasonably believed to be of a kind to whom such promotions may be communicated by an unauthorised person pursuant to an exemption under the FSMA (Financial Promotion) Order 2005 (the “FPO”).  Such persons include: (a) persons having professional experience in matters relating to investments (“Investment Professionals”) and (b) high net worth bodies corporate, partnerships, unincorporated associations, trusts, etc. falling within Article 49 of the FPO (“High Net Worth Businesses”). High Net Worth Businesses include: (i) a corporation which has called-up share capital or net assets of at least £5 million or is a member of a group in which includes a company with called-up share capital or net assets of at least £5 million (but where the corporation has more than 20 shareholders or it is a subsidiary of a company with more than 20 shareholders, the £5 million share capital / net assets requirement is reduced to £500,000); (ii) a partnership or unincorporated association with net assets of at least £5 million and (iii) a trustee of a trust which has had gross assets (i.e. total assets held before deduction of any liabilities) of at least £10 million at any time within the year preceding the promotion.  Any investment opportunities mentioned in this Grosvenor Europe Website are available only to such persons, and persons of any other description in the UK may not rely on the information in it.  Most of the protections provided by the UK regulatory system, and compensation under the UK Financial Services Compensation Scheme, will not be available.

Grosvenor Europe is established in the United Kingdom, which is a member state of the European Economic Area (the “EEA”).  Accordingly, this Grosvenor Europe Website is issued by Grosvenor Europe to the categories of persons described in the paragraph above that are both resident in and accessing this Grosvenor Europe Website from any member state of the EEA in reliance on its rights under the Directive on Electronic Commerce (2000/31/EC).  The member states of the EEA are:  Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Sweden and the United Kingdom.

If you are not resident in an EEA member state or you are viewing this Grosvenor Europe Website in a country that is not an EEA member state, information displayed on this Grosvenor Europe Website contains material that may be interpreted by the relevant authorities in the country from which you are viewing the Grosvenor Europe Website as a financial promotion or an offer to purchase securities. Accordingly, the information on this Grosvenor Europe Website is only intended to be viewed by persons who fall outside the scope of any law that seeks to regulate financial promotions in your country of residence or in the country in which the Grosvenor Europe Website is being viewed. Examples of such persons may be governmental agencies, persons sufficiently experienced in investment business to appreciate the risks associated with investment services promoted on this Grosvenor Europe Website, large corporations and trusts and high net worth individuals. These examples are not country specific, may not be relevant to the country in which the Grosvenor Europe Website is being viewed and are provided for illustration purposes only. If you are uncertain about your position under the laws of your country of residence or the country in which the Grosvenor Europe Website is being viewed then you should consult your legal adviser.

Notice to Persons in the United States:

With respect to U.S. investors, investments in funds managed by Grosvenor Europe or a related entity are restricted to institutional investors who meet certain eligibility requirements.  Any potential investor should satisfy him or herself that an investment in any product of Grosvenor Europe or a related entity is permissible under the rules and regulations of his or her domicile.  This Grosvenor Europe Website is not directed to any person in any jurisdiction where the publication or availability of this Grosvenor Europe Website is or would be prohibited.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. YOU SHOULD CONSULT WITH YOUR LEGAL, TAX, FINANCIAL, AND OTHER ADVISORS PRIOR TO MAKING AN INVESTMENT WITH GROSVENOR.

The related entities of Grosvenor Europe include Grosvenor Investment Management Limited, which is registered in England (Company Number 02774291) with its registered office at 70 Grosvenor Street, London W1K 3JP and which is authorised and regulated by the Financial Conduct Authority.

By ACCEPTING this disclaimer, you consent to the above Conditions and, in particular, you confirm that either:

(a)     you are resident in and accessing this Grosvenor Europe Website from one of the United Kingdom or another member state of the EEA and you qualify as an exempt category of person under the FPO (such as an Investment Professional or High Net Worth Business, as described under “LEGAL NOTICES” above); or

(b)     you fall outside the scope of any law that seeks to regulate financial promotions both in the country of your residence and in the country in which you are viewing this Grosvenor Europe Website, and therefore by accessing this Grosvenor Europe Website you will not contravene or cause Grosvenor to contravene any such law.