According to Savills latest research, the European grocery sector has a positive growth outlook for the coming years. Improving consumer confidence, inflation slowly returning to target rates and a forecasted rise in retail sales bode well for consumers, retailers and investors alike.
Increased spending will help retailers’ margins recover and drive growth expansion plans, accelerating occupiers’ need for space. These factors will play a significant role in fuelling investor appetite and increasing investment volumes for the sector, according to the international real estate advisor. As at Q2 2024, Savills average prime European supermarket yield stands at 5.90%, retail warehouse yield at 5.94% and 6.25% for shopping centre yield.
James Burke, Director, Global Cross Border Investment at Savills, says: “While a lack of stock may limit the number of transactions, sale & leaseback deals and mergers & acquisitions will support activity in the market. We expect to continue to see consolidation of portfolios as the big grocery players look to grow their market share. Supermarket yields are expected to remain stable for the remainder of the year and begin to harden in 2025 as interest rates across Europe fall and investors seek to increase their exposure to the market.”
Larry Brennan, Savills Head of European Retail Agency, says: “We are starting to see a rise in consumer preference for convenience and smaller stores, leading to many retailers focusing on city-centre ‘express’ shops and reducing the larger hypermarket format. Convenience and independent stores, which have become increasingly prominent since the onset of the pandemic, allow consumers to make smaller and more frequent, essential, ‘top up’ purchases close to their homes. As a result, shoppers have become much more reliant on what is local, in addition to larger, less frequent supermarket shops. This is resulting in many retailers rethinking their hypermarket footprint.
Georgia Ferris, Associate, European Research at Savills, says: “For grocery stores located outside of city centres, for example in shopping centres, the best assets need to be decentralised from the main shopping centre so that consumers can easily access the store by car and utilise click and collect services. These types of supermarkets also need a good retail mix provided by the centre to ensure high footfall to the location.”