Based on extended research covering its home markets in France, Germany and the Netherlands, Bouwfonds Investment Management (Bouwfonds IM) concludes that retail continues to offer attractive investment opportunities for investors, provided that investors take into account the many challenges faced by retailers today. Furthermore, Bouwfonds IM expects mature markets to see a shift towards refurbishment of existing and ageing stock.

An assessment of shopping centres in the Netherlands, Germany and France in potentially attractive locations shows that nearly 50% of the total identified m2 of shopping centre floor space is in need of refurbishment, offering interesting investment opportunities for retail investors. In a new research report ‘Refurbishment – the way forward in European ‘brick and mortar’, Bouwfonds IM analysed 859 shopping centres in France, Germany and the Netherlands with a minimum floor space of 5,000 m2 built prior to 2005.

“Retail investors need to take a fresh look at traditional ‘brick and mortar’ retail locations with the aim of identifying those with a good chance of successfully responding to the ‘cross-channel’ era caused by the emergence of online retailing ”, says Jaap Gillis, CEO of Bouwfonds IM. According to Bouwfonds IM, this means that the degree of dynamism in a shopping area, its sensitivity to online retailing and overall positioning should be added to traditional considerations such as a catchment area’s population size and the strength and outlook of its economy when considering investing in retail properties. By overall positioning, we mean that shopping centres should choose whether they want to be (and be known as) a destination for convenience shopping or, alternatively, as a destination which provides an ‘experience’ to visiting consumers.

Looking at the three key factors of local dynamism, vulnerability to online retail and the choice between convenience and experience, Bouwfonds IM arrives at a number of high-level assessments of the different types of retail areas:
• The centres of major cities often provide excellent ‘experience’ value due to a wide mix of tenants, retail branches and services that the public can choose from, resulting in a lively overall atmosphere which creates high levels of dynamism and footfall. Smaller towns with particularly attractive (historic) centres also tend to qualify as an ‘experience’ destination, but those without such assets are likely to be at risk.
• Very large shopping centres (>80,000 m2) typically offer a wide variety of retailing categories, although fashion stores tend to dominate this category of real estate. While they are sensitive to e-commerce, their variety of branches and formats gives them considerable dynamism in terms of their ability to attract new tenants for shops that become vacant. Such shopping areas increasingly need to be positioned as ‘experience’ destinations. Those located out of town face the biggest challenge.
• The above characteristics of ‘very’ large shopping centres also apply, more or less, to medium and large shopping centres (20,000-80,000 m2). However, this category of shopping real estate is more vulnerable to competition from online retailing, and their frequently narrower range of retail branches can make it more difficult to attract new tenants.
• Small shopping centres are often convenience shopping destinations and, in this category, the presence of large supermarkets offering a good quality product mix, combined with attractive supplementary shops, tends to be a recipe for success if the catchment area meets the necessary criteria (e.g. population size, strength of the local/regional economy).

The report further concludes that Europe’s retail industry has reached, if not exceeded, saturation point in terms of stock floor space. “Bouwfonds IM believes the way forward, in mature markets, is now to focus on modernising and adapting existing shopping areas rather than building new ones, and doing so with a keen eye to the requirements of ‘brick and mortar’ retailing in a cross-channel world. This will offer attractive investment opportunities for retail investors in the coming years”, explains Martin Eberhardt FRICS, Geschäftsführer and Country Manager Bouwfonds IM Germany.