Impressive comeback – retail parks outperformed other retail sectors

Retail parks emerged as the most resilient retail sector during the pandemic, across most European markets. European Retail warehouses accounted for over 33% of the total retail investment activity Q1–Q3 this year, up from a five-year average of 18% according to Savills European Research. This is also reflected in the narrowing yield gap between shopping centres and retail warehouses. Investors looking for retail are highly focused on formats driven by value, convenience, and which have capacity to service e-commerce functions. Retail parks are well placed to combine traditional with online retail in one location.

Only a while ago the retail park seemed like the shopping format that the future left behind. But the pandemic changed most things, and retail parks are no exception. Consumers have showed preference to open air, large-scale shopping formats, easily accessible by car, where social distancing and hygiene protocols have been easier to follow. Modern big-box distribution centers and retail warehouses have experienced an impressive comeback and the asset class is really on property investors’ focus. In Q3 21 and for the first time in Savills historic series, the prime average retail warehousing yield (5.43%) fully converged with the average prime shopping centre yield.

Rental discounts have not become a trend in the best retail parks due to their resilient performance and high occupancy. The highest achievable rents can be found in Dublin, more than double the European average (€38/ sq m), followed by Helsinki and Copenhagen. Average prime achievable rents are at €17.5/sq m per month.

The defensive characteristics of the convenience and value have been driving investor confidence. Although resilience drive performance of retail parks that should not make us oblivious to the fact that the sector will face challenges, as well. The whole retail sector has already been in transition before the pandemic. The share of online sales in Europe is anticipated to account for 25% in 2025. Consumers are shopping through multiple channels and retailers need to offer omnichannel options to their customers. Other concerns are related to ESG and the fact that an increasing amount of the retail warehouse stock is becoming dated. Retail parks will remain relevant if they address the evolving consumer needs.

A strict distinction between distribution and retail premises can no longer be made. While living and working can be multifaceted and their environments change, a retail space can be a store, a distribution warehouse, and a workspace at the same time. Retail parks are increasingly seen as a hybrid operation providing in-store retailing with last mile delivery fulfilment options, benefiting from good accessibility and proximity to dense urban areas. Superior supply-chain management creates a competitive advantage. To rethink the future of retail parks, there is a growing focus on redevelopment and repositioning of existing schemes and to enhance the offer with new product categories, leisure, F&B, services and even clinics. More flexible planning is required to allow the repositioning of schemes.

More in detail information: SAVILLS Spotlight Retail Parks Europe, November 2021

Irma Jokinen, researcher