×

OUR COMPANY AFFILIATES

CBRE GROUP

CBRE Group, Inc. is the world’s largest commercial real estate services and investment firm, with 2017 revenues of $14.2 billion and more than 80,000 employees (excluding affiliate offices). CBRE has been included in the Fortune 500 since 2008, ranking #207 in 2018. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services.

INVESTMENT SERVICES

CBRE Global Investors, combined with CBRE Clarion Securities and CBRE Caledon, is one of the world’s leading real asset investment managers with $105 billion in assets under management.

Built up over more than 40 years, our unparalleled platform is focused on real assets, giving our institutional clients access to real estate and infrastructure in the Americas, Europe and Asia Pacific. Our clients benefit from a complete range of investment solutions including equity and debt, direct and indirect, and listed and unlisted strategies.

Trammell Crow Company, founded in Dallas, Texas in 1948, is one of the nation’s oldest and most prolific developers of, and investors in, commercial real estate.The CBRE Global Investors and Trammell Crow Company platforms make up the Real Estate Investments division of CBRE Group.

The Real Estate Investments division is led by
Danny Queenan, Global CEO, Real Estate Investments.

BLOGS

Regularly released content on the state of the real estate and infrastructure industry are produced by our subject matter experts and shared on their blogs. A selection of them can be found below.

Viewed 310 times

EUROPE WATCH

The boom in Europe is slowly decelerating. As the region returns to more normal levels of economic growth, the transition from a period of strong capital growth will mean that investors will need to work harder to drive future returns. Against this backdrop, retail has come under greater scrutiny. To some, retail conjures images of abandoned high streets and dilapidated shopping centres; of consumers forsaking physical stores and gleefully accumulating goods via online check outs; or of once mighty brands closing their doors forever. This may be true of some secondary locations, particularly in the UK where the sector is facing significant challenges. However, this presents a very narrow view of the sector in Europe as a whole. For example, we continue to observe the strong performance of prestige high streets in key European cities, which have profited from surging global tourism flows, whilst dominant shopping centres offer attractive income returns. Understanding the nuances of the sector is therefore more critical than ever in driving value. In this month’s Europe Watch, we highlight the key trends impacting retail in Europe.

CONSUMER SPENDING TO BOUNCE BACK IN 2019

In December 2017, Europe was in the midst of a sustained period of strong economic growth. At the heart of this boom were consumers, driving domestic demand. Whilst the European economy remains on sound footing, consumer sentiment has fallen to its lowest level in almost two years as consumers have become more pessimistic about their economic prospects as inflation starts to eat away at their real incomes, which have seen only limited growth since the GFC. However, we believe that consumer spending will improve in 2019 as businesses start to invest more in labour to boost sluggish productivity. With unemployment in the Eurozone at its lowest level in over a decade at 8.1%, skilled workers are in a position to demand higher wages as businesses struggle to recruit new employees.

DECEMBER 2018

3,173.13

-0.8%

Euro Stoxx 50

0.00%

ECB Policy Rate

0.32%

-7 bps

10-yr. German Bond

$58.71

-22.2%

Brent Crude

Data points through end of November 2018. Change represents month-over-month change.

FIRMS CITING LABOUR SHORTAGE AS A PRODUCTION CONSTRAINT

Source: Oxford Economics

PRINCIPAL CONTRIBUTOR:
David Inksip
David Rees
RETAIL RENTAL GROWTH HARDER TO FIND

2018 has been a year in which European retail has faced both cyclical and structural headwinds, and demand from retailers for physical space has slowed. It will be weaker retail locations that feel the impact disproportionately, but even across the high streets of Europe’s major cities the impact can be seen in rental growth figures. Looking at prime rents across a sample of approximately 50 high streets across Europe, the balance of power in negotiations between landlords and tenants has shifted over the past 18 months. Through 2016 more than half of these high streets were registering annual rental growth while almost none were seeing declines. Now the split is much more even, but despite the negative headlines around the sector the balance remains in positive territory.

HIGH STREETS RECORDING PRIME RENT GROWTH/DECLINE, % OF LOCATIONS

Source: CBRE

ECOMMERCE ADOPTION INFLUENCING INVESTMENT ACTIVITY

In the UK almost 20% of retail spending now takes place online, and this is having a profound impact on retail property. With fewer sales taking place in-store, it is apparent that there now exists an oversupply of physical retail space. It is no coincidence that retail investment volumes have been below their long-term average over the past 12 months, as investors tread carefully while they consider which locations and assets will be resilient in the face of this structural change. However, not all European markets are as progressed in terms of online retail adoption. Investors appear to be more comfortable buying in markets where the impact from ecommerce is less pronounced, such as Southern Europe and Central and Eastern Europe.

RECENT RETAIL INVESTMENT VOLUME VS. HISTORIC AVERAGE AND ONLINE RETAIL SALES, %

Source: Centre for Retail Research, Real Capital Analytics

INVESTOR CAUTION CLEAR TO SEE

Attitude to risk changes as the real estate cycle advances, and investors must reassess how they will meet their target returns. Data from INREV shows that in 2018 there has been a shift in style preferences towards value add and opportunistic investments. However, this is not equally applicable to all sectors. With clear structural changes at play the downside risks appear greatest for retail property and consequently there is less appetite for taking on risk in the sector. This is illustrated by prime and secondary shopping centre yields data from CBRE. The prime-secondary yield gap has increased by c.20 bps since early-2016, which is in contrast to the office and industrial sectors where the spread has continued to contract.

EU-15 PRIME VS. SECONDARY SHOPPING CENTRE YIELDS

Source: CBRE

SOME LOCATIONS WILL CONTINUE TO THRIVE

Investor caution is well warranted, but the sector should not be dismissed altogether. There will be retail destinations that continue to thrive, even in these tougher conditions. While retailers may require fewer stores in aggregate, having a physical footprint in key locations will only become more important. The locations that will continue to thrive will be those that have guaranteed sources of footfall. This could be because the location is where people live, where they work, or where they travel. Tourism has been a key support to major European high streets, and the chart illustrates the strong correlation between rental growth and visitor numbers. As retail sales are increasingly spread across different sales channels ‘brand equity’ will become even more valuable to retailers, and stores visited by large, international audiences can be a significant marketing tool in this context.

HIGH STREET RENT GROWTH VS. INTERNATIONAL TOURISM

Sources:Euromonitor, CBRE

Related Content

This information is for our clients and investors only. Please note that the content of this report is for informational purposes only and should not be viewed as investment advice or an offer or solicitation. Any opinions are solely those of the Strategy & Research Team of CBRE Global Investors and are subject to change without notice, and may not be consistent with market trends or future events. This research is based on current public information that we consider reliable, but we do not represent it as accurate, updated or complete, and it should not be relied on as such.

Copyright © 2018, CBRE Global Investors, LLC. All rights reserved.