Oliver Fraser-Looen, Head of Retail Investment EMEA at Savills, says: “At a time when the European retail sector is changing, sale and lease back transactions can be an opportunity for retailers seeking to raise capital to reinject in their core business. From an investor’s perspective, as long as the retailer offers a ‘future-proof’ strategy that includes, amongst others, a good location, contract length and digital strategy, this is an affordable alternative opportunity to source property and to invest large amounts of capital, generating long-term income streams.
“In the current environment, retailers are constantly assessing their property portfolios, undertaking downsizing exercises to ensure they have less exposure to bricks and mortar ownership, in particular in those cases where there are multiple outlets in the same city. This, in turn, is inducing an experience retailing culture that is more suited to flagship format stores. Moreover, even though they are aware that retailers may not be committed to a certain location, investors are attracted to the SLB principal on account of its secure cashflow, so long as the income covenant is strong enough. We believe that this trend will continue on the condition that both sides feel like they are getting a good deal.”
The blurring line between retail and logistics
The reasons behind the divergence between blossoming and vanishing retailers lies in their commitment and speed when it comes to adopting a strong online experience, investing in technology, reorganising their supply chains and redesigning their sales areas to meet the new on-demand inclination of customers, says Savills.
Whilst in the past retailers used to expand their footprint by opening new stores in new catchment areas, the structural decline in in-store sales requires a change in strategy, looking at locations with strong existing footfall or with potential for growing footfall. Additionally, the panoply of combinations between sales and delivery “from and to” routes is forcing retailers to revise and reorganise their entire supply chain.
Lydia Brissy, Director, European Research at Savills, says: “As a result of these changing dynamics and demand for logistics space, we expect yields to continue hardening in this sector until the end of the year, whilst overall retail yields will start stabilising. The line between the two sectors will slowly disappear since part of the logistics activity is absorbed by the retail industry.”
According to data from Statista, online sales in Europe have increased 2.5 times over the past decade, reaching various degrees of penetration, from 3.5%-5% in Central and Eastern Europe and Southeastern Europe, to 7.5%-10% in Western Europe and up to 15.1% in Germany and 17.8% in the UK.
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