By Pedro Caupers, executive director, investment and asset management, Sonae Sierra
European retail real estate is high again on the shopping list of investors, who are on the lookout for quality assets with impressive fundamentals, against a background of improved macroeconomic context and shifting global dynamics.
While the race to enter Asia has slowed somewhat, and North America can be seen as being expensive due to its advanced position in the real estate cycle, continental Europe continues to offer international investors high-quality assets in diverse territories, from emerging markets to core ones. Brexit may have clouded the future of the UK economy, but unprecedented demand in Germany has squeezed yields to extremely low levels due to the scarcity of prime product, driving a large number of investors to southern Europe, as the international wave of capital continues to seek interesting returns.
From a development perspective, mature markets such as Germany require a rather specific approach, which is why Sonae Sierra is embarking on one of its first ever urban regeneration projects in Nuremberg. Here we’re planning on transforming a former distribution centre covering some 250,000 sq.m. into a mixed-use scheme, with retail at its heart. This move forms part of a broader plan for Sonae Sierra to explore mixed-use developments, anchored by retail in diverse markets.
In a very different market, our new ParkLake shopping centre in Romania has already proved to be a success since opening last year. Representing a €180m investment to create a 70,000 sq.m. GLA shopping mall with over 200 shops, we’ve already won several awards for this project, in one of Europe’s most interesting emerging economies. Since we planned ParkLake, Romania has gone from strength to strength as an investment destination, with property investments there jumping by a remarkable 35% in 2016 alone. We believe that 2017 could be an even more impressive year for investment volumes and we recognise that it’s important to be ahead of the curve, and to have relevant knowledge about the local market.
Spain is another compelling market where investors have recently redoubled their interest, and where Sonae Sierra owns and manages multiple centres. The market recorded in 2016 some of the best investment volumes in retail real estate since 2007, and the outlook for 2017 suggests that the trend is continuing. We believe that portfolio maintenance is key, that is why we will be refurbishing the interiors of our GranCasa, Max Center and Valle Real shopping centres, to ensure that they continue to attract consumers. We are also advancing with construction of the Malaga Designer Outlet scheme, a one-of-a-kind project in southern Spain, representing a total investment of €115m, which is scheduled to open in 2018. We are pleased to be partnering here with McArthurGlen Group, as they make their debut in Spain. In addition to new projects and refurbishments we have recently completed the purchase of Área Sur Shopping Centre in a joint venture with AXA Investment Managers – Real Assets where we are the operating partner with a minority participation.
Development and co-investment partnerships enrich our portfolio and our experience. We have recently established two new funds in Iberia, including the Iberia Coop fund with CBRE GIP, where we are an operating partner, minority owner and manager. We are actively pursuing the fund’s objective to build a portfolio of shopping centres and retail parks, focused on Iberia.
Our other new fund venture is a REIT created in December 2016 together with Spanish bank Bankinter, which has an ambitious acquisition programme targeting low-risk small and medium-sized stand-alone assets, backed by long-term contracts. Sonae Sierra holds a small stake in the fund, with the majority owned by Bankinter’s private banking clients.
At the core of our growth strategy, our capital recycling programme gives investors the chance to access quality assets, while we often retain minority stakes and the role of operating partner, providing asset management and property management services. This enables us to continue to guide the development of these assets and implement the value creation opportunities that have been identified, while releasing capital to reallocate to other divisions, particularly for new developments.
Portugal is a rather special case where investors would love to find even more product, but competition for quality assets is high. Sonae Sierra remains clearly the market leader in this territory, currently co-owning 21 shopping centres and with two very large expansions about to start.
The hunt is on for quality assets across Europe, and as investors keep struggling to find attractive prices in Germany, France and Benelux, they will continue to explore the potential of the southern countries. pc