Upward pressure on European retail yields has persisted since the pandemic, and has been further exacerbated by interest rate hikes beginning in 2022. In Q2 2024, prime retail yields have moved out by an average of 97 bps since Q4 2019, 27 bps in the past twelve months and remained stable during the last quarter, showing that yield softening is slowing. 

Yield softening has not been consistent among all retail formats. European supermarket yields have softened the least since before the pandemic by only 10 bps, taking the average prime yield to 5.90% in Q2 2024. Since 2020, strong fundamentals have allowed the average supermarket yield to compress while all other retail yields moved out. The pandemic exposed the resilience of the sector and triggered strong interest in the grocery market. Though, the sector has not escaped the current economic environment, meaning yields have softened by an average 23 bps YoY. Though, between Q1 and Q2 2024, supermarket yields have hardened by 14 bps. 

Experiencing the most decompression since 2020, European shopping centre yields have moved out the furthest by an average of 168 bps since before the pandemic to 6.25% in Q2 2024. Yields softened 41 bps YoY and 6 bps during the last quarter. Retail warehouse yields have moved out by 94 bps to 5.94% since before the pandemic, 19 bps YoY and remained stable during the last quarter. 

Supermarkets have proved to be a defensive and resilient asset type in the face of lockdowns, changing consumer behaviours and the rise of e-commerce. Continued demand for grocery assets could see yields begin to tighten by year-end as economic conditions improve.

_{Read the articles within Spotlight: European Grocery Market 2024 below.}