Retail parks are the sector’s star performer with yields dipping to historic lows

The average retail park yield is now 5.43%, which is the same as the average shopping centre yield (5.43%), as investors focus on formats driven by value and convenience, as well as those that can service e-commerce functions.

On an annual basis, prime yields softened in Amsterdam (25bps), Madrid (25bps), Germany (20bps), and Milan (10bps) but remained stable throughout 2021, while the strongest quarterly yield compression was noted in Spain (-25bps) and the UK (-25bps).The annual increase in investment into retail parks and retail warehouses was 29% during the first three quarters of the year, which is 20% above the five-year average, an upward trend that Savills forecasts is set to continue.

In 2021, over €5.1bn has been invested in the sector across nine European countries. During the third quarter alone, investment was up 46% on the previous year, with the majority of capital directed to the UK (46%), Germany (37%) and France (12%).

Retail park assets remained defensive during the pandemic. Footfall and sales declined less severely at retail parks during the Covid crisis than they did at shopping centers and high street shops, as consumers were drawn to open-air, large scale formats that are easily accessible by car.

As a consequence, there was only a 0.4% decrease in footfall at UK retail parks over the course of October 2021 compared to pre-pandemic levels, shows data from the British Retail Consortium. Shopping centres registered a -33.6% fall during the same period, and high streets saw footfalls decrease by -18.3%.

Savills report, Retail parks - what will drive their future resilience, explains that the occupier mix of retail park assets was one factor that helped shore up defenses as shopping trips were curtailed during the pandemic. New habits and leisure pursuits that were formed during lockdowns - around DIY and home improvement, gardening and sports - underpinned sales for many typical retail park occupiers.

These trends are having a positive effect on rental values. Average prime achievable rents at retail parks (across Europe) stand at €18/sq m per month. Prime rents have increased in Helsinki (3.4% year-on-year), remaining stable in other markets.

Eri Mitsostergiou, director, European research, Savills, said: "Large and comparatively low-rented units, combined with good car parking provision and accessibility means that retail park assets are suitable for servicing click-and-collect orders, customer returns and home deliveries - functioning as last-mile fulfillment centres. As a result, a number of brands are now exploring expansion opportunities in this segment."

Leila Packett, associate director, Regional Investment Advisory EMEA, Savills, added that investors were recognising the future potential of retail park assets: "As record low yields squeeze out many investors from the industrial sector, pricing is starting to reflect that retail warehousing is underpinned by many of the same fundamental drivers.

"Investors looking to meet higher return thresholds while managing income risk have discerned that retail parks are often located close to population centres, anchored by tenants with a strong covenant and are generally less exposed to changes in discretionary spending due to downturns or public health restrictions. We've seen a sharpening in prices throughout 2021, and we expect this to continue in 2022."

Looking ahead, the report says that retail parks will still need to adapt to the challenges from the growth of ecommerce across the European region. It urges the owners of outdated retail park stock to explore redevelopment and expansion of existing schemes in order to broaden the offer of product categories, services, leisure and food and beverage.

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