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European retail real estate 'contaminated' by US 'contagion'

Negative investor sentiment toward U.S. retail real estate is spreading unfairly to the European market and dragging down the share prices of European retail landlords, two senior industry figures said at the EXPO Real international trade fair for property and investment in Munich, Germany.

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Industry figures speak at the EXPO Real event in Munich.
Source: S&P Global Market Intelligence

"There's a general sentiment among some of the hedge fund and private equity guys that [retail real estate] markets are oversupplied and that sentiment is a contagion coming across the Atlantic from the U.S. market where it's an entirely different dynamic," William Kistler, executive vice president and managing director for Europe, Middle East and Africa at the International Council of Shopping Centers, said during a panel discussion on European retail investment. "The problem is many of the global investors are tarring [all] retail real estate with the same brush and shorting retail globally."

The shares of many of the ICSC's publicly traded members were trading below net asset values "for no good reason" other than the perception of e-commerce's threat to traditional retail, he added.

Florencio Beccar, director of retail investment for Europe at CBRE Global Investors, agreed. "All the noises coming from the U.S. are very much contaminating our market here [in Europe]," he said. "The U.S. overbuilt, and unfortunately there are too many square meters of [gross leasable area], and they will have to do something about it."

Conflating the U.S. and European retail real estate markets is a mistake, said Beccar, noting that there is seven times more GLA in the U.S. than in Europe. The U.S. market's overreliance on department stores as anchor tenants, which are being "cannibalized by e-commerce," is not a problem European outlets are experiencing, he said.

"Our shopping centers in Europe are grocery-anchored, and that's a completely different ballgame," said Beccar. "That brings you weekly customers. Everybody still shops in hypermarkets, everybody likes to check the fresh produce, and the penetration of e-commerce there is marginal."

Demographic trends also point to a brighter outlook for European retail real estate, according to Kistler. Millennials' tendency to want to live in urban areas is prompting some investors to begin investing in high-street retail in Europe, he said, citing a recent move by Hines to raise funds for that purpose. This demographic trend makes the U.S. even more "vulnerable," Kistler said, as it is "essentially a peripheral suburban shopping center market," whereas Europe is comparatively well-placed given that it has a lot more city-center retail.