The growing importance of property characteristics

“As valuers tracking the market, we are now seeing more positive activity in the cities’ core central shopping districts,” asserts Geert Wesselink. The appearance and unique features of inner-city retail properties are once again becoming important in the market and seem to be enhancing appraisal values; that is, if the properties are not excessively large.”

“The appearance and unique features of inner-city properties are becoming more crucial. Properties in characteristic historic city centres perform exceptionally well, particularly if they are situated on a corner, have the appropriate front width, or are in a high-profile location. There’s notable interest in properties of this specific type in prime shopping areas from premium brands that are actively seeking town centres for their experiential values. This includes fashion, high-end shoe, and makeup brands, as well as popular sports and automotive brands, who promote their electric vehicles. Many brands that were previously exclusively online are now recognising the advantages of the omnichannel retail model and seeking attractive locations in inner cities. City centres are thriving and attract consumers because they offer a strong demand for experiences, fun, fashion, food, and drink, as well as culture. However, the situation is different for shopping areas on the outskirts and decentralised shopping centres.”

Property market reset

“The opportunities for investors in retail properties stem from economic changes over the past year that have ‘reset’ the property investment market. The rapid interest rate shift has jolted prices, investment returns, and portfolio values. For retail, these changes have been advantageous,” argues Wesselink. “Retail investments, which had been trailing behind logistics, office, and residential opportunities, are now attracting new interest. The sector has been less affected by the negative market, as yields had already been through a structural change and investor Loan to Values are more conservative.

As the investment climate in other sectors toughens, investors are revisiting retail, sensing better market dynamics and returns. Nevertheless, the retail investment volume in 2023 was circa 45% lower at around € 1 billion, with many of those transactions being funded with own equity or limited financing.

We are noticing more positive relocations at lease expiry. Rents are stabilising, as is inflation, giving retailers an attractive entry point. This does mark a significant change in the market. High street real estate in particular has become more attractive and sectors like convenience-driven shopping centres, mini and high-end supermarkets, specialty shops, and luxury shops have gained momentum. In these areas, we observe private investors and other non-institutional players seizing opportunities. They prefer smaller retail assets – what we in the industry call ‘smaller tickets’ – located in areas that offer a blend of the right properties and the quintessential inner-city retail experience. These investors feel conditions, yields, and prices are better aligning now for a sustainable and predictable return on investment.”

Investments in sustainability

Environmental, social and governance (ESG) concerns are becoming increasingly important, due to EU regulations and for the success of retailers. A growing share of consumers prefer ethically brands and products. “With leases expiring or new tenants moving in, there’s a growing trend of investing in sustainability. Retailers’ reputations and corporate images are now more influenced by having a responsible sustainability strategy. This is also a crucial factor for investors: the more sustainable an asset is, the better its financing terms,” explains Wesselink. The challenge for us as valuers is getting transparency on the return on sustainable investments!

Impartial and objective appraisals

Our appraisal process includes rigorous checks and balances, and we have complete access to the Vastned portfolio, encompassing all the fund’s leasing activity. We utilise transaction trends, market analyses, benchmarks, and our databases, which include insights into current and expected future developments, not just past ones. Let’s be clear: it’s the market that determines value, and as valuers our job is to interpret that market evidence – and sentiment- in a rigorous and objective way. We believe that this detailed approach is our added value, ensuring a fully transparent determination of the right value.”

For me the 2023 market was challenging and complex. But I have enjoyed providing Vastned with impartial valuation advice.

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