April: Risks Widen Yield Spread for Shopping Centres

April: Risks Widen Yield Spread for Shopping Centres

Chart of the Month
06.04.2021 Author/s: Sven Carstensen and Anna Wolfgarten

Shopping centres as lively meeting places from which all players derive economic benefit. But this image had already cracked before the pandemic. The uncertainty is not only great among tenants and landlords, but also among investors. For the 5% study, which will be published on 22 April, we have forecast the returns of shopping centres.

There is no doubt that the Corona crisis has accelerated this development: Internet retail is growing rapidly. In 2020, it was over 24 percent compared to the previous year - at the expense of stationary retail and thus also of shopping centres and commercial buildings. In 2030, more than 25 percent of total retail sales are expected to be made through online trade.

The nationwide retail investment market was able to achieve an above-average result overall with a volume of around 11.94 million euros in 2020. However, demand in the retail sector is drifting apart: while investors are pouncing on crisis-proof retail parks and local supply centres, the investment market for shopping centres is lying fallow. The demand situation is difficult; currently only a few are being traded. This is because buyers fear having to factor in high investment costs for the conversion of (partial) spaces. In addition, investors are uncertain to what extent future rent adjustments will fail or shops will close - even if it is becoming apparent that prime city centre locations and shopping centres will survive this development more robustly than location areas and centres that already showed signs of a declining willingness to pay rents before Corona.

Because these risks have been priced in, the yield spread has widened considerably. In 2019, a yield (IRR)* of 3.2 to 3.9 per cent could still be observed, which has widened to 2.5 to 4.3 per cent for core properties in 2020. Food-oriented retail space, which is less dependent on the economy and e-commerce, continues to be a sought-after investment. Retail parks with a high proportion of periodic requirements benefit from this. Their comparatively lower margin proves the security of these investments.

In general, it has become even more challenging for professional investors in most asset classes to achieve secure returns in the past year.

* Internal rate of return. This ratio is used to estimate the profitability of potential investments. A holding period of ten years is assumed.


Note: The preview of the 5% study 2020/21 was already presented at the beginning of March. The full study will be published on 22 April 2021. Newsletter subscribers are automatically invited to the webinar. We look forward to your registration.

Contact persons: Sven Carstensen, Executive Board at bulwiengesa, carstensen [at] bulwiengesa.de and Anna Wolfgarten, Junior Consultant, wolfgarten [at] bulwiengesa.de