Europe V is targeting a total return of 10-12% net per annum after costs, fees and local taxes, including a yield of 5%-plus. It has already made its first acquisitions, purchasing two assets in The Netherlands from pan-European retail real estate investment manager Redevco for EUR c. 31m. These assets comprise two retail premises located in Breda and Almere, let to C & A, ESPRIT and JD Sports. The fund is expected to deploy all initial capital imminently, with a further capital raise scheduled for Q2 2018.
Europe V marks the firm’s second recent European retail focused fund, following the launch of Nordic III – Retail in late 2017. Nordic III acquired four retail parks from IKEA Centres for EUR 125m following a successful first close and will invest in high street properties, locally-dominant retail centres, warehouses and retail parks across Sweden, Denmark, Norway and Finland. It is also expecting a second close in Q2 2018.
Europe is experiencing an increase in retail sales owing to a widespread economic recovery and decreasing unemployment, with consumer spending expected to remain a key driver of economic growth. E-commerce is changing the way people shop, but physical store sales still account for over 85% of all sales and there was a net opening of 400 new stores in 2017. There remains low vacancy rates and strong demand from retailers.
The strategy of the Europe V and Nordic III funds reflect the firm’s belief that consumers embrace e-commerce, but as retailers evolve to meet consumer needs, physical shops continue to offer a multichannel experience that online platforms alone cannot and there are retail subsectors that will benefit through rising e-commerce. Structural changes in the retail sector means stock selection will be crucial going forward, where factors such as location, consumer experience and quality of retail premises are increasing in importance.
Problematic issues with an over built-American retail market have often contributed to a similar negative perception of retail in Europe. This has led to attractive relative pricing and buying opportunities across certain European territories, particularly in the Netherlands and Germany. The Nordics are similarly attractive, with the retail sector in the region benefiting from strong economic and employment growth. Medium-sized regional centres and neighbourhood schemes in locations with good economic foundations and socio-demographics offer a more enhanced shopping experience and attract footfall via food and beverage providers, leisure facilities and entertainment.
The two funds target different risk profiles. Europe V is a value-add fund whilst Nordic III is a Core/Core+ fund.
Neil Varnham, Fund Manager of Europe V, Savills Investment Management, commented:
“We anticipate that the next 12 to 18 months will present some highly attractive buying opportunities in western European retail. Many European economies have followed Germany and moved into a recovery phase with rising consumer confidence generating growing levels of sales which feed through to demand and rental growth.
“To secure good returns it is essential to consider the key factors driving a locations success and failure. We will leverage our 13 office European platform, local market knowledge and extensive retail experience to source and add value to assets.”
Kiran Patel, Chief Investment Officer, Savills Investment Management, commented:
“Investors must be cognizant of the risk factors facing retail but also aware that the sector currently presents opportunities for managers able to identify the right assets.
“We have identified six types of retail we believe to be resilient or primed to take advantage of changing trends including outlets/malls and retail stores or parks which combine retail with leisure and entertainment to provide consumers with an ‘experience’.”
With regards to the Breda and Almere asset purchases, Savills IM was advised by McDevitt, Dentors Boekel and Bouwkundig and Savills Building & Project Consultancy.
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