Retail investment revival: Is 2024 the year?
A new year brings forth familiar questions for retail real estate in the UK—When will interest rates decrease, freeing up investment? How will locations beyond prime centres fare? Will consumer enthusiasm for in-person retail persist?
A recent summary from React News, succinctly captured the prevailing sentiment in retail with the hopeful view that stars aligning ‘to crystallise a renaissance’. Ian Sandford, President of Eurofund Group noted a gulf between tenant demand and the current investment landscape, but also expressed optimism for 2024. Senior executives from CBRE, ECE and Landsec also concurred that although some challenges will persist, strong performance of prime centres present a clear investment opportunity. Although investment figures across real estate sectors hit a 10+ year low, Lambert Smith Hampton reported that retail remained one of the more resilient sectors in terms of deals during Q3 2023.
The deals that have taken place during 2023 demonstrated that—for the right type of deal and assets—investment is within reach. In terms of lending by banks, BNP Paribas acted the bookrunner of a €276m loan for Carmila for four retail assets, whilst BayernLB arranged a financing of the circa €500m purchase by ECE and Generali of the Pep shopping centre in Munich. Alternative lender activity included Ares Management’s £300m refinancing of London retail and hotel assets. And of course, from the private equity side, Signal Capital Partners collaborated with Eurofund Group in a joint venture to acquire Rhein Ruhr Zentrum in Essen in July 2023, pledging to invest a total of €180m CapEx in repositioning and transformation.
Looking ahead, the theme of leveraging extensive retail sector expertise to secure investment is likely to persist, with the volume of deals expected to increase. For retail veterans the coming year is one of opportunity, and combining the right asset with hands-on asset management looks set to bring higher yields for investors.
Beyond reflections on the past year, and what that activity indicates for 2024, other trends that retail players must remain attentive to include investors’ (and regulators’) increasingly rigorous ESG requirements, asset managers’ cultivation of strong tenant relationships, and obtaining the right tenant mix for longevity. Taking a broader perspective, the performance of international market, including the Middle East and China, are also likely to have a significant impact on lending patterns and flows of capital.
Many centres reported strong performance for the past year, both in terms of interest from brands and consumers, particularly over the Christmas period. Across the board, sector leaders generally agree that prime centres will continue to see robust performance. Ultimately, the question lingers: When will investment tides follow suit and begin to change?