PARIS-Investment in French retail property grew strongly in the first half of the year and the expansion is likely to continue in the second half, according to international realtor Savills. The investment climbed to $2.8 billion from $700 million in the first half of 2009, largely as a result of the completion of prime retail deals such as Unibail-Rodamco's acquisition of Simon Ivanhoe and the purchase of the prime Cap 3000 shopping centre by Altarea Cogedim and its shareholders Predica and ABP.
“We believe this upward trend in investment is set to continue throughout the second half of 2010 as some major assets are currently under negotiation, including St-Martial in Limoges for $132 million and l’Heure tranquille in Tours for $106 million,” said Savills’ Christophe Gouny.
Yields have come under pressure as a result of competition between investors and scarcity of prime investments. Prime yields for large regional shopping centers fell to 5.5% from 6% in 1H09, and for major retail parks eased to 6.75% from 7%. However, secondary properties held steady at around 6.75% for shopping centres and 8% for retail warehouses.
While rents for the most established malls and retail parks remain stable, a significant downward correction is expected in secondary locations. Since end-2008 rents in secondary locations have fallen 11.5% for units of less than 538 square feet and 14.3% for retail warehouse units of around 10,760 square feet, and Savills expects this downward trend to continue. “For the best located premises, retailers are choosing to stay in existing units at their current rents even if this implies an increase of their affordability rate rather than face the cost of moving,” said Lydia Brissy of Savills European research department.
While investment in existing real estate is increasing, new retail developments have dipped as a result of decline in consumer spending. Between January and May 2010, some 498 retail projects totaling 14 million square feetwere submitted to the CDAC planning authority against 511 projects or 17.2 million square feet during the same period of 2009. However, discount retailers and value fashion retailers have accelerated their development activity, Savills said.
Allan Saunderson is a managing editor of Property Investor Europe and a contributor to GlobeSt.com.
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