In its latest analysis, the European Research team at Savills illuminated the shopping center investment sector in 23 European cities based on four market parameters: size, stability, sales opportunities, and potential returns.
The analyzed cities were: Amsterdam, Athens, Berlin, Breslau, Brussels, Dusseldorf, Edinburgh, Helsinki, Copenhagen, Krakow, Lodz, Lyon, Madrid, Milan, Manchester, Marseille, Munich, Oslo, Paris, Poznan, Stockholm, Warsaw, and Vienna.
The “Savills 2016 European Shopping Center Investment Benchmarking Report” puts Stockholm in the top spot due to its solid economic conditions. Warsaw, London, Amsterdam, and Paris were close behind.
Lydia Brissy, Director of European Research at Savills, commented: “Stockholm is the most balanced market in terms of size, stability, opportunities, and returns, making it a haven for most investors interested in shopping center investments. Considering all the factors relevant to our benchmark, Stockholm comes out on top. Returns there are higher than in London and Paris, which also enjoy reputations as havens.”
A small but wealthy city
With a per capita GDP of €59,000, Stockholm is a small but wealthy city. Moreover, its retail sales level per capita, at €10,080, places Stockholm in fourth place after Dusseldorf, London, and Paris.
In addition, Savills expects a significant, 2.6% annual increase in retail sales through 2021. Both total and per capita shopping center areas are high, at 1.4 million sq m and 0.635 sq m per person, which opens plenty of buying opportunities for investors.
Warsaw is close behind Stockholm in the Savills Shopping Center Benchmark. “The typical investor interested in the Warsaw shopping center market is opportunistically oriented, as the strength of the market is mainly dependent on sales opportunities and potential returns,” Brissy continued.
Annual retail sales in Warsaw are relatively low compared to other cities, but the Polish capital’s consumers spend a lot. According to Savills, this is particularly significant against the backdrop of the city’s relatively low (compared to most of the other European cities in the study) per capita GDP of €31,730.
In 2016, retail sales per capita in Warsaw averaged €9,740, putting it 5th among the 23 cities analyzed. For the next five years, this spend is expected to increase rapidly, by an average of 4.3% per year—the second-highest growth after Krakow (4.6%). Warsaw will thus become the city with the highest sales per capita (€11,650) by 2021. The vacancy rate is low and international brands are taking an active interest in the market.
“Low unemployment, a strong GDP growth forecast, and its large population lead to the conclusion that, in terms of size, the Warsaw market can compete with core markets in short and the medium term,” said Brissy.
Shift in investor demand
London was long the European city with the highest shopping center investment volume. In 2011, the proportion of the total investment volume going to the 23 European cities in the analysis that went to London was still 26%.
Since the beginning of 2016, this proportion has dropped to about 9%, while Krakow and Helsinki are now ahead with 22% and 13%, respectively. Regarding the Savills’ benchmarks, London has the highest per capita GDP (€89,400) of the 23 cities. Its total retail sales put it at 2nd place behind Paris and, in terms of sales per capita, London also ranks second behind Dusseldorf (€10,400).
“The London market, however, is more volatile than Stockholm’s, which may be positive for investors with short-term investment objectives,” said Brissy. “What makes London so attractive for investors, however, is the size of the market and its per capita GDP.”
Oliver Fraser Looen, Director Cross Border Retail at Savills, commented: “Demographic change, urbanization trends, and changing consumer behavior are affecting the landscape of retail sales in Europe and we are seeing a shift in investor demand as a result. We expect growing interest in shopping centers in less traditional markets like Warsaw and Amsterdam in 2017. Those two markets are relatively small, but they have solid fundamentals and therefore offer investors a good price-performance ratio. We also believe that the Nordic markets, particularly Stockholm, have the potential to attract investors with different profiles and strategies and, in contrast to markets like London and Paris, at competitive prices. Also of note is the continuing trend towards cross-border investments as investors aim at strong, long-term fundamentals now that borders are no longer seen as barriers to entry.”