Retail investment moderates in H1 2019
Economic growth in the Eurozone was stronger than expected in the first part of 2019, although activity is clearly slowing. Domestic demand is driven by very buoyant household consumption, supported by a resilient job market. Unemployment rates have reached historic lows in many countries and prospects for job creation continue to be positive. Besides, consumer spending in Europe will stay vigorous and forecast to grow by 1.7% in 2019 and 2020.
European retail sales are forecast to remain at a good level in 2019 (+2.4%) and over the following 2 years (+2.0%). Stronger growth is expected for this year compared to 2018 in the UK (+3.6% vs +2.8%) and in Germany (+2.3% vs +1.6%) unlike France (+2.1% vs +2.9%). Retail sales in CEE countries should continue to increase significantly in 2019: Romania (+6.6%), Poland (+5.4%) and the Czech Republic (+4.6%).
Retail is reinventing itself in response to changes in consumer habits where a larger proportion of purchases occur on-line instead of in physical shops. In 2019, European online sales are expected to match the 5-year average growth of +14.0% (source : E-commerce Foundation). The rate of growth is over +20% in Central and Southern Europe driven by growing internet penetration.
By end of H1 2019, European commercial real estate investment reached €253 bn over the past 12 months, decreasing by 5.5%. Offices with 46% market share represent a growing portion of the turnover and come mostly at the expense of retail.
Retail investment, although it remains the 2nd largest sector by volume is experiencing continual decline with €42 bn over the last 12 months. In H1 2019, retail investment fell 31% over H1 2018 to €16 bn, its lowest level since 2013. Among the major markets, Germany performed well (+15%) thanks to the complete takeover of Galeria Karstadt Kaufhof. Decreasing volume was recorded in the UK (-28%), due to ongoing retailer difficulties as the sector restructures and the added uncertainties surrounding Brexit. France started 2019 slowly (-19%) but a higher second half-year is expected.
High streets prime yields are still under pressure in most European markets. Germany posted a record low of 2.80% as at Q1 2019 (Berlin and Munich). Shopping centre prime yields have followed an upward trend since the beginning of the year except in Poland where yields recorded a lowest 10-years low at 4.25%.