Retail rentals in Europe to stabilise by mid-2010: Cushman & Wakefield

Cushman & Wakefield is predicting that retail rental falls in most European markets would bottom out by mid-2010 although sustained rental growth is unlikely to be achieved until 2011. 

In its new European retail report 'Key Drivers in Retail for 2010', the company expects a relatively positive 12 months in the retail occupier and investment markets, including increased retailer expansion and positive total returns by mid-year for core assets in most countries.

The report identifies 12 key drivers of the market in 2010, which include economic outlook, consumer sentiment, retailer demand and retail supply. Twenty-five countries are rated against these drivers to provide a picture of the likely relative strength of the market across Europe.

All the Scandinavian countries are expected to perform well with the Czech Republic, Germany and Slovakia also providing an environment conducive for growth. The picture in Ireland and Spain, however, looks less positive and these markets are least likely to see a return to growth in 2010, the report said.

One of the key factors which is expected to drive growth in 2010 is the relative affordability of retail space. Retail rents have fallen across most markets in the last two years. High street rents in Romania and Ukraine for example have fallen by over 40 per cent, with a further nine markets recording falls of over 10 per cent from peak to trough (as at end September 2009).  Retailer demand is already beginning to increase as rents seem to be bottoming out in many markets. Certainly, for prime space, there has been an increase in demand from major retail brands across borders in a bid to secure AAA locations at rents, which appear to offer relatively good value.

The outlook for retail property investors is also brighter than for some time. Capital values for retail property have, over the last 12-18 months, seen significant falls. It is encouraging, therefore, that there is now a marked slowing in the pace of yield increases, with the UK becoming the first major market to record yield compression having peaked in Q2.  There is scope for more markets to follow the UK's lead, although this will depend increasingly on rental growth, which may be constrained until 2011.