In its latest ‘Think’ report, Henderson’s Property business assesses the investment case for
shopping centres within Southern Europe.
The European debt crisis and ensuing recession left investors feeling nervous about Southern
Europe. However, institutional buyers are returning to Spain and Italy, seeking to pinpoint the trough
in the cycle; with the additional improvement in liquidity, opportunistic investors or institutions
targeting long investment horizons have become more active in the market. In Italy, increasingly
lower prices, alongside a need for diversification and a hunt for yield, have started to appeal to core
investors. These buyers are also returning to Spain and a couple of deals in late due diligence
should set the prime tone for shopping centres and parks in the future.
Henderson considers the economic recovery of each region and the health of their respective retail
climates. It also compares provision against retail spend for each country, highlighting large variants
across location quality.
The paper concludes that, while stock selection is critical, now is the time to invest and take
advantage of yield driven capital growth:
A recovery in incomes and retail spending should start to occur as employment levels
stabilise, expected as early as next year in Spain and the following year in Italy. By 2017,
the industrialised regions in Northern Italy and Spain should also enjoy growth rates in retail
sales, similar to those in France and Germany.
Prime yields for shopping centres and parks represent attractive discounts relative to the
UK, Germany and France, where best quality assets command yields of between 4.75% and
Spanish and Italian shopping centre yields are close to the top end of their previous cyclical
range but the recovery in prime yields will probably take place quickly, leaving a narrow
window to invest.
Stefan Wundrak, Director of Research, Property, Henderson Global Investors, says: “The
property risk premium for Spain and Italy is higher than for most other major countries in Europe.
However, expected returns should compensate for the risk. Capital uplift will drive short term
performance as yields respond to lower risk aversion and rental growth will contribute to
performance after retail sales and retailer confidence recover.
“In terms of vacancy and churn, however, there are wide variations in performance between and
within regions, highlighting the importance of opportunity-led strategy. In terms of stock-picking,
large centres with affluent catchments are strongly recommended and only prime centres with stable
passing rents should be considered. Dominant centres proved to be resilient over the crisis years
and are much better placed over the medium term to lead the recovery in rental growth.”
Source : Company