The last quarter of 2006 was particularly active: some €10 billion, nearly 40% of the total volume for the year, was transacted between October and December.  Over 200 investors bought retail property in 2006, with the top ten investors accounting for a third of the total investment volume.

Jeremy Eddy, Director in European Retail Capital Markets at Jones Lang LaSalle commented: “The last twelve months have witnessed no slowdown in the unrelenting demand for retail real estate across Europe, particularly in the core markets of Germany, Spain, Poland and Italy.  Investor interest is moving further east and we have seen the first major transactions taking place in Turkey, Russia, Ukraine, Croatia and the new EU member states of Romania and Bulgaria. We forecast more of the same in 2007, with the market remaining as competitive as it has been over the past two years. The main drivers of this geographical diversification by investors are yield margins and asset management opportunities”.

Richard Bloxam, Director in European Retail Capital Markets at Jones Lang LaSalle added: “We believe that 2007 will see the trends of 2006 becoming more pronounced:  Germany will continue to be the largest volume market in Continental Europe with a number of investors profit-taking and thus releasing some stock onto the market. Core Europe will see more buyers looking for income growth and asset management opportunities and the search for yield will drive investors east and south.  We expect Russia to be the fastest growing retail investment market in 2007.”
The biggest retail property investor in 2006 was ING Real Estate Investment Management, accounting for 6% of total volume and 9% of total shopping centre volume (shopping centres in Southern Europe were a particular focus for ING in 2006).  With regards to the outlook for 2007, Will Rowson, Head of European Acquisitions at ING REIM, commented: “We see the market in 2007 remaining just as competitive as it has been for the past 12 months, and therefore having a team of good local people on the ground across Europe is critical to securing product ahead of the market.  Active asset management in the retail sector remains the key to driving fund performance.”

2006 Highlights

Destination of Capital

• Retail property investment became truly pan-European in 2006: Jones Lang LaSalle tracked transactions in 25 European countries last year, compared with 16 in 2005. Western Europe was the main target for investors in 2006 (as it was in 2005) but the Nordic and Eastern regions have gained importance.
• Germany remains the prime area of activity for investors: More than €8 billion (32% of total volume) was spent there in 2006 – a 72% increase on 2005. The largest transactions were the Lidl supermarket portfolio (mentioned above) and the acquisition of four shopping centres by Merrill Lynch from Brune for circa €710 million.
  The second largest market was Spain (€2.5 billion). The year was notable for three major single asset transactions: the acquisition of Madrid Xanadu by Ivanhoe Cambridge for c. €350 million and earlier in the year, the sale of Diagonal Mar shopping centre in Barcelona by Deka for more than €300 million to Quinlan Private plus the purchase of the Barakaldo Retail Park near Bilbao for €220 million by Resolution Property, which was the largest single asset retail warehousing deal in Spain and in Continental Europe.
• Poland was close behind in third place with €2.4 billion of transactions in 2006, over double the volume seen in 2005, and a large proportion generated from portfolio deals. Retail warehousing has seen a significant increase in activity in Poland compared to previous years. AXA purchased a retail portfolio from Apollo for circa €600 million and GE Real Estate purchased a major hypermarket portfolio for circa €550 million.

Transaction Type

• Portfolio transactions have been a key feature of the market in 2006, accounting for 40% of total transaction volumes. This increases to over 50% in Germany, Poland, France and Finland.
• Shopping centres continue to be the most sought after product, accounting for approximately 60% of transactions by volume, totalling €15.2 billion. Another €7.5 billion was spent on retail warehousing (retail parks and solus units), €2.8 billion on supermarkets and a further €433 million on factory outlet centres in Italy, Spain, Germany and Netherlands.
• Although the total volume of retail transactions tracked excludes high street unit shops across Europe, it should be noted that more than €7 billion of high street portfolio deals were completed in Germany in 2006.

Sources of Capital

• Investors from the UK have been the biggest spenders in 2006.  Some 22% of the total capital came from the UK, mostly from private property companies who purchased shopping centres and solus retail warehouse units in Germany, Finland and Sweden.
• Third party managed funds, with the majority of capital coming from Europe, were the second most important group.
• Overall, Europeans remain the largest investor group in their own market, but the USA and Australia are also significant investors. Over €800 million was invested from the UAE, a large proportion coming from St Martins Property Corporation, who spent over €600 million in Turkey and made a further acquisition in Poland.
  

* This review considers all investment sales of shopping centres, retail warehouses, factory outlet centres and supermarkets in Continental Europe. The analysis excludes UK & Irish markets; the high street and any investment  deal less than € 5 million in value.