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New concepts for independent customers

Remember when Amazon was the place to buy books online? Now the US giant has brick-and-mortar bookstores in Seattle (its home town), Portland and San Diego. It has also just opened its first grocery store in downtown Seattle, showing that the retail industry is continuing to undergo profound transformation.

Remember when Amazon was the place to buy books online? Now the US giant has bricks-and-mortar book stores in Seattle (its home town), Portland and San Diego. It has also just opened its first grocery store in downtown Seattle, showing that the retail industry is continuing to undergo profound transformation.
The 551 sq m Amazon Go concept store, which opened to the pub-lic at the beginning of 2017, is not your ordinary food outlet. It offers a Just Walk Out Shopping experience – so customers avoid queuing at the checkout. Sensors track what they buy in store and they are billed through their Amazon Prime account. As technologically advanc-ed as this supermarket of the future may be, why would Amazon open a physical shop – years after being accused of killing traditional book shops? The US firm says it wants to “push the boundaries of computer vision and machine learning to create a store where customers could simply take what they want and go”. But what does this new opening mean for the retail property industry? Does it augur a healthy future for the retail property asset class?

Food and grocery analysts commenting on the opening of Amazon Go say that it remains very important for the consumer to touch and feel the prod-uct before making a purchase. Surely that is good news for the retail prop-erty industry – whether we are talking about buying food, a new outfit or the latest electronic gadget. And investment volumes in retail property speak for themselves.

After a record year in 2015, European retail investment volumes amounted to €39bn in the first nine months of 2016, according to BNP Paribas Real Estate (BNPPRE). Retail investments represent more than 25% of total prop-erty investment and retail prime yields in the region’s core markets remain under pressure amid high demand and tight supply. In the UK, yields have shrunk to below 2% since 2014 and in Spain, yields have dropped sharply after several years of high returns. London’s New Bond Street and Paris’s Avenue des Champs Élysées have witnessed the highest rent levels ever. Over the past 10 years, prime rents have multiplied fourfold in London and doubled in Paris, BNPPRE said. At an annual $14,725 per square metre, the Champs Élysées is still the most expensive avenue in Europe, advisor Cushman & Wakefield said in a report in November. “Demand is strong for the right space in the right location and the lack of supply along the majority of Europe’s main thoroughfares is seeing rents rise further and expanding the boundaries of well-established streets,” said Justin Taylor, head of retail EMEA at C&W. “Retailers are facing technological advances head on, with more and more brands opting to offer online sales alongside, not instead of, a physical presence.”

BNPPRE shares the view that retailers now acknowledge that e-commerce still needs physical stores. “Retailers are rethinking their online strategy and embracing physical shops as their biggest assets,” said Fiona Hamilton, global head of retail for international brands, in a report published just before the MAPIC retail trade fair, which was held in Cannes last November. “Bricks-and-mortar stores are back and are the next step for online retail-ing,” she said, explaining that retailers are merging their online and high street presence and “a pure play e-commerce approach is dead.”Retailers have indeed shown that investing in property has become a prior-ity. Let’s look at Macy’s, for instance. In November, the US department store chain announced it had formed an alliance with Canadian investment manager Brookfield Asset Management to develop its real estate portfolio. Under the alliance, Brookfield has an exclusive right for up to 24 months to create a ‘pre-development plan’ for each of Macy’s approximately 50 prop-erty assets, with an option for Macy’s to continue to identify and add assets into the alliance. Opportunities range from additional developments on portions of assets to the complete redevelopment of existing stores. “The Brookfield alliance strengthens our ability to improve the customer shopping experience by giving us greater flexibility to invest in our most productive and highest-potential locations, and to make the most of our real estate assets, or portions of them,” said Macy’s CEO Terry J Lundgren. Before announcing the partnership, Macy’s, which generated sales of more than $27bn in 2015, already said that stores were a critical element of its long-term omnichannel strategy and its balance sheet objectives. Meanwhile, property investors are making sure they snap up the best retail assets.  

Mit Smartphone und Computer im Internet einkaufen

In November, Norway’s €800bn sovereign wealth fund Norges bought a mixed-use property, which is currently under development, from Great Portland Estates for £276.5m. The property located at 73-89 Oxford Street was the fund’s second investment in London – more specifically on London’s central shopping street – since the Brexit vote in June. The building offers total floor space of 8100 sq m including two large retail units. It is pre-let to fashion retailers New Look and Benetton. In December, the fund also paid €1bn to acquire a 26,800 sq m office and retail asset on the world-famous Place Vendôme in Paris. Laid out at the beginning of the 18th century as a monument to the glory of Louis XIV, the square is famous for its luxury stores and hotels, which include the Ritz. There are numerous examples of international institutional investors’ appetite for prime retail prop-erties. In September, a joint venture formed by Oxford Properties, the $34bn real estate arm of Canadian pension fund OMERS, the Swiss luxury goods group Richemont (through its property arm RLG Real Estate Advisors), and the US family-owned commercial property investor Crown Acquisitions bought a prime New Bond Street property for £198m. In November, US pension investment group TIAA and Spanish retail developer NEINVER bought six outlet centres across Europe worth more than €700m, as well as another Spanish retail centre for a price reported to be over €100m, marking one of the largest retail acquisitions of the year.

If London and Paris are still the most attractive markets in Europe, Amsterdam, Barcelona and Warsaw are the rising stars. According to the specialist estate agent Savills, they should increasingly attract international brands aiming to expand in the region. Meanwhile, the research company Capital Economics says prime rental values have grown by 17% in Barcelona since the start of 2015 and 15% in Madrid.  
The omnichannel approach, or ‘clicks to bricks’, was the central theme of the latest MAPIC trade fair. At the conference, Cyril Grira (Head of Industry, Retail at Google) and Emmanuel Begerem (Head of Channel Partnerships at Google) said the frontier between online and offline is becoming blurred. “For instance, consumers search online before buying in store or compare prices with their mobile in physical stores. Google is closely collaborating with retailers and partners around the globe to develop online-to-store and omnichannel retailing solutions,” they said.

Still, online shopping is booming and this trend has been having a significant impact on another property segment – logistics – as pressure for ever-faster delivery is pushing logistics companies towards city centres. In Germany for example, where online sales were worth about €60bn in 2016, Amazon has launched a new fast-delivery service in Berlin and Munich with small distribution centres in central locations. Meanwhile, Deutsche Post DHL is building a distribution centre in Dusseldorf. “Current megatrends such as same-day and same-hour delivery are posing new challenges to logistics and retail companies,” according to Peter Kunz, who is Head of Industrial and Logistics, Germany at Colliers International. “With the growth in e-commerce, downtown logistics will continue to expand, creating new delivery models tailored to meet urban requirements. The scarcity of avail-able space calls for flexibility and creativity in order to effectively integrate small-scale logistics into large cities,” he says. At the end of 2016, it was announced that German investor and developer ECE will develop nine logis-tics centres across Germany for the logistics service provider Hermes. The centres will be completed by 2019 for a total investment of €600m and the projects are part of Hermes’ expansion plan as it seeks not only to adapt its infrastructure to increasing e-commerce sales, but also to accelerate shipping. “The new locations will take us closer to our existing and poten-tial new clients from the e-commerce industry,” said Dirk Rahn, Managing Director of operations at Hermes Germany. On average, one new distribution centre will be built every three months.

Once an alternative asset class, logistics is now attracting the biggest investors. In November, Singapore’s sovereign wealth fund GIC announced it had bought the pan-European logistics platform P3 Logistics Parks for €2.4bn. In the same month, Blackstone, the world’s biggest real estate private equity firm, said it had purchased a 204,000 sq m portfolio of lo-gistics assets in Spain and Italy. It did not disclose the purchase price. Logistics assets offer the biggest opportunities in European property over the next 12 months, according to 44% of institutional investors polled by online platform BrickVest in October. In Germany, logistics take-up rose to a record 5m sq m – despite short supply in the first nine months of 2016, according to estate agent JLL. Boosted by online retail, totals are 43% above the 10-year average. In the first half of 2016 alone, industrial and logistics investment in Europe was worth almost €11bn, according to BNPPRE.

A seamless customer experience, omnichannel strategies, online to store – a variety of new industry buzzwords suggest that 2017 should be another good year for retail and logistics property investments.

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