Shopping centre investment has been a major trend in Europe’s real estate market in recent years. With the rise of e-commerce and changing consumer habits, shopping centres face both opportunities and challenges. However, they remain an attractive asset class for many investors due to stable tenant demand and growth potential. This article will analyse the prospects of European shopping centre investments, including factors impacting their performance, investment hotspots, and risks to consider.
Prime shopping centre locations see high demand from investors
The most coveted shopping centres are situated in prime urban locations and major metropolitan areas. Top-tier centres in capital and regional cities like London, Paris, Madrid and Milan continue to achieve strong occupancy and rental growth. Their excellent accessibility and high footfall from affluent local catchment areas make them resilient against e-commerce disruption. Investors are bidding aggressively to acquire dominant centres in these resilient locations, accepting lower yields amid keen competition.
Well-managed centres prove defensive against e-tailers
While online retail poses a structural challenge, well-managed centres are adapting their tenant mix, services and events to remain competitive. By attracting popular international brands, improving leisure offerings and integrating omni-channel retail, the top centres enhance customer experience and sustain retailer demand. Refurbishment and active asset management allow landlords to future-proof their assets, though this requires significant capital expenditure.
Lacklustre secondary centres face decline risks
In contrast, secondary shopping centres in small catchment areas or with weak transport links face declining footfall and rising vacancies. Anchor tenants are closing underperforming stores, forcing weaker centres into a downward spiral. Less affluent catchments and inferior retail/leisure amenity make these centres unattractive for both retailers and consumers. Without extensive repositioning, secondary assets face terminal decline and conversion into new uses.
Higher perceived risk calls for selective underwriting
While prime centres offer resilient cash flows, the overall sector is perceived as higher risk by lenders and investors. Struggling secondary assets and obsolete tertiary centres drag down aggregated performance. Due diligence is critical to identify asset quality, catchment stability and turnaround potential. More conservative underwriting, including higher target yields and capital expenditure buffers, is prudent given retail sector uncertainty. Portfolio acquisitions require rigorous analysis to avoid inferior assets.
Omni-channel integration vital to sustain competitiveness
To attract customer visits and sustain tenant demand, shopping centres must integrate online and offline retail. Click-and-collect services, virtual shopping tools, and in-centre fulfilment options are becoming expected amenities. Landlords must implement the required digital infrastructure and form commercial partnerships to facilitate these services. Retailers are increasingly demanding omni-channel capabilities when making leasing decisions.
While structural changes pose risks, European shopping centres remain sought-after investments if selectively targeted. Dominant urban centres and proactively managed assets with strong catchments will continue to deliver stable returns. However, capital values and rents may correct downwards for inferior secondary centres facing irreversible decline.