ANNOUNCEMENT: Expert Investor is now PA Europe. Read more.

Dim outlook for European retail real estate

But baseline scenario sees 2022 recovery of FTSE Epra Nareit Developed Europe Index

The retail sub-sector of listed European real estate equities has been one of the worst hit by the covid-19 outbreak, but the entire sector saw some upswing after its sharp fall in March.

Oxford Economics and the European Public Real Estate Association (Epra) found in a recent report that the baseline scenario of the FTSE Epra Nareit Developed Europe could see the index recover in 2022.

Ali Zaidi, director of research and indexes at Epra, commented: “The recovery from the economic shock caused by the pandemic looks to be much faster than other disasters, such as the global financial crisis, and economic stimulus programmes are at the centre of this.

“Where other economic shocks have resulted in a slow recovery for equities and real estate equities, this time listed real estate equities could return to pre-covid levels in 2022, which is rapid by comparison. Some sectors, like residential and industrial, have already recovered to pre-crisis levels.”

Fund flows are recovering, according to EPFR Global.

Source: EPFR Global


But the latest Last Word Research survey showed weakening European investor sentiment towards property assets.

Source: Last Word Research

In June, the industrial, residential and healthcare sub-sectors of the FTSE Epra Nareit Developed Europe returned about 20% below their pre-crisis peaks, and that was significantly higher than lodging/resorts and retail (see graphs below).

Online trend

John Hammond, head of real estate securities for Europe at DWS, explained to Expert Investor that the recovery that started in retail in June is short lived and not meaningful.

He expects prices to “vary between the March lows and June ‘highs’ until a new rental base is established and asset values adjust” and also points to structural changes that covid-19 has sped up.

Sasha Kachanova, investment analyst at Aberdeen Standard Investments, said that the pandemic has accelerated online trends in Europe, which has been lagging behind the UK, US and China in e-commerce penetration.

“From an operating perspective, even with shopping centres reopening, a sustained recovery [in retail] appears challenged, as the pandemic has intensely accelerated some well-known structural pressures.

“Lockdowns have forced retailers to invest further in their digital offering, and we have seen e-commerce sales rising exponentially, breaking the few existing barriers and making the consumers more accustomed to online shopping,” she told Expert Investor.


How much pressure the retail sector could see going forward is uncertain.

Kachanova points to numerous risks and more pressure on retailers from short-lived leases, a stronger shift of consumer behaviour to online, cost-cutting measures in rental payments and the risk of intolerable balance sheet stress.

Hammond sees individual companies facing significant downside as they restructure balance sheets. Across the real estate sector however, he believes that it is unlikely that a bigger shock to share prices will come through.

He says that, today, investing in companies with the strongest balance sheets is key.

“We believe the relative winners will be the best centres and those that provide local convenience, but all asset prices will need to reflect lower future growth,” he adds.

Kachanova explains that “the current valuations seem to incorporate a broad range of possible outcomes”, and sees little hope for a significant re-rating for European retail real estate.

“At this point, we prefer areas with favourable structural growth drivers, such as logistics, or expanding alternative space, like self-storage,” she notes.


  • Can M&A and buybacks breathe life into UK market?

    Can M&A and buybacks breathe life into UK market?

    Both buybacks and M&A should help realise value in UK shares, boosting prices and giving investors another reason to consider the UK stockmarket Not only does M&A activity appear to be picking up, with a high-profile bid for UK electronics retailer Currys, but the scale of company buybacks continues to accelerate. If it goes well,…

  • Capital Group launches multi-thematic Article 8 funds

    Capital Group launches multi-thematic Article 8 funds

    Capital Group has launched a set of multi-thematic sustainable funds that are available for investors in Europe, writes Christian Mayes. The Capital Group Sustainable Global Opportunities fund (LUX) will invest in global equities, while the Capital Group Sustainable Global Corporate Bond fund (LUX) will target fixed income exposure. The launch also includes a multi-asset offering…

  • Bond funds pull in €29.7bn in January – LSEG

    Bond funds pull in €29.7bn in January – LSEG

    Bond products were the best-selling asset class in January, according to LSEG Lipper’s European Fund Flow report, writes Christian Mayes. The asset class pulled in a net €29.7bn in the month, while Money Market USD grouping was the best-selling Lipper Classification after receiving €11.2bn inflows. Providers of mutual funds pulled in €22.5bn, while passives saw net…

  • Quarter of Article 8 funds at risk of greenwashing – MainStreet Partners

    Quarter of Article 8 funds at risk of greenwashing – MainStreet Partners

    A quarter of all Article 8 funds could be accused of greenwashing based on their sustainability framework and practices, according to MainStreet Partners, writes Christian Mayes The 24% of funds classified as a greenwashing risk by the 2024 ESG Barometer report marks a four percentage point increase from the 20% flagged at the end of…

  • EU green rules could stymie decarbonisation projects – ExxonMobil

    EU green rules could stymie decarbonisation projects – ExxonMobil

    The European Union’s climate regulations may lead to it halting its investments in Europe, ExxonMobil has warned. Speaking to the Financial Times, Karen McKee, president of the product solutions division, said the oil and gas giant had struggled to begin decarbonisation projects in Europe due to the regulatory burden. The result, she added, was that…

  • ICE flags need for Europe to double green investment

    ICE flags need for Europe to double green investment

    Investments to modernise energy and transport must double by the end of the decade to reach 2030 climate targets, the EU has been warned. According to the Institute for Climate Economics (ICE), which has released the European Climate Investment Deficit report, the bloc lacks what it calls a “consistent tool” to ensure monitoring of the…