Savills - Retail General - France, Spain, Italy, Greece & Portugal, Out-of-town Retail Market

Date: 15 Apr 2005

The out-of-town retail market in southern Europe is becoming more international in flavour as developers push back the boundaries in their desire for expansion and retailers seek to take advantage of cheaper rents and fresh markets by jumping borders, according to Savills' latest European report.

Retail parks and factory outlet centres are following in the wake of this drive for greater representation. Developers are also focusing on smaller and less supplied catchments as the more mature shopping centre markets of southern Europe become saturated and planning regulations, in some areas, start to bite.

The retail warehouse sector is being driven by consumer expenditure and demand from retailers, which is helping to create a leasing market in this owner-occupier dominated sector. This in turn is supporting the investment market.

Prime retail warehouse rents are cheapest in Portugal at €144 per sq m pa and are most expensive in France at €160 per sq m pa. However, Spain offers the cheapest rents for prime shopping centre units, at €325-345 per sq m pa; Portugal holds up the other end of the scale at €840-1,200 per sq m pa.

While investors are keen to get involved in southern Europe, some are having to do so at the development stage as fewer standing opportunities come to the market. With demand increasing, especially from new funds, yields are being pushed down to as low as 6% in the case of France but generally to around 6.5-7% for shopping centres and 7-8% for retail parks/warehouses.

France

As more retail warehouse schemes come to the market in France, letting periods are getting longer and now average 8-12 months. Leading the international contingent are Kingfisher and IKEA, which plans four new stores over the next 12 months. The majority of new out-of-town schemes are retail parks with at least 150,000 sq m planned for the Paris region alone. By comparison, new shopping centre development is limited, partly because of planning restrictions, so extensions to existing centres are more usual.

Spain

The Spanish out-of-town retail market is something of a success story. Total supply of shopping centres increased to over 9.18 million sq m with another 1.2 million sq m in the pipeline. Most well-designed and well-located new projects achieve high occupancy ahead of opening, and the average size of shopping centre has grown to 34,000 sq m, compared with 26,000 sq m in 2003. Average density has also risen to 215 sq m per '000 inhabitants in places like Madrid, prompting development in secondary cities such as Valencia, Alicante and Costa del Sol.

Italy

It is the central and southern areas of Italy that are attracting the most interest as the more mature development pipeline in the north slows down. Hypermarket-anchored shopping centres dominate both existing and future supply, with around 200 such schemes planned over the next two to three years. The involvement of major retail investors and funds at the development phase is supporting the growth in retail parks, with at least 100,000 sq m in the pipeline, while the increase in factory outlet centres is being fuelled by international operators like McArthur Glen, Neinver and Value Retail, leading to at least 140,000 sq m in the pipeline

Greece

Greece is playing catch up with its European neighbours and last year increased its total stock of shopping centre space by 26% to 400,000 sq m, which could double in the next two years, particularly with completion this year of two of the largest schemes in the pipeline: Mediterranean Cosmos in Salonica and Media Village in Athens, totaling 107,000 sq m. While Athens continues to account for the lion's share of existing space, at 41%, more new schemes are now being developed in the regional cities, but retail parks and factory outlets remain at an embryonic stage.

Portugal

Consumer confidence is on the upturn after the record lows of 2003 and Portugal continues to rank at the top of many retailers' expansion plans, especially those from Spain and France. Many trade in bulky goods, driving forward the retail park concept. In shopping centres too, development activity remains strong with more than 430,000 sq m in the pipeline over the next couple of years. Lisbon can boast Europe's largest factory outlet centre with the opening of Freeport's 75,000 sq m scheme last June. However, a new planning law came into force last year which could restrict some development activity in the medium to longer term.

Eri Mitsostergiou, head of European research at Savills, comments: "There is clearly an appetite for new retail parks in southern Europe. Investors are hungry for new product and, with the number of opportunities for standing investments dwindling, they are looking instead to financing new developments. The overall prospects for this sector are healthy, so long as consumer demand and GDP growth continue to underpin it."

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