What’s in store for European shopping centre investment?

With restrictions across Europe largely eased and lifted, a return to form for the region’s major shopping centres and malls could now be on the cards.

Several high-quality assets in Germany and the UK are expected to have new owners by the end of this year and European shopping centre investment is on track to return to levels last seen in 2019.

Of course, factors such as consumer spending power and the current cost of living squeeze may get in the way. But a return to instore shopping after a long period of e-commerce growth is an encouraging sign. From the recovery of COVID-19 to new economic challenges, pockets of growth, resilience and repriced assets could now fuel investment activity.

Since mid-2021, investment activity has been recovering and the tide for the European shopping centre investment market has been turning; European shopping centre investment in the first nine months of this year totalled €8.3 billion, a 54% year-on-year improvement.

Selectivity

Investors in Europe’s shopping centres remain selective when spending. It’s worth remembering that European shopping centre investment is still some 42% below the nine-month average experienced during 2014 to 2019, when the market peaked. It’s also clear that shopping centre investment still has some way to go if it’s to fully recover; as a proportion of total European retail investment, shopping centres account for 28%, compared with an average 41% from 2015 to 2017.

In most cases, investors have narrowed down their selection criteria to assets offering strong defensive qualities, including grocery tenants, strong non-food anchors and community services that generate footfall. Major shopping centre transactions in the sales process will go some way to helping provide the market with valuable benchmark yields at a time of price discovery. Recent examples include Alecta Fastigheter’s acquisition of the Solna Centrum in Stockholm, NREP’s purchase of Columbus Shopping Centre in Helsinki, Keva’s purchase of shopping centre Kaari and the addition of Gulskogen Senter in Drammen, Norway to Aurora Eiendom’s newly established portfolio of shopping centres.

Meanwhile, with continued divestments from retail REITs, high liquidity in the UK’s secondary market and an ongoing supply of off-market opportunities, there’s clearly potential for this re-emerging retail asset class.