PARIS-Europe, including here and in the United Kingdom, has seen signs of prime yield stabilization in the retail sector with further hardening forecast, according to international real estate advisor Savills. Paris has recorded a 75 base point inward yield shift in shopping centers and 50 base points in retail parks. Madrid, Barcelona and Warsaw have seen a 25 base point yield hardening for shopping centres.

The research, which looks at shopping center and retail park performance across 27 European Union locations, states that this investment appetite is due to a renewed confidence in the sector. Whilst consumer confidence remains negative across Europe, it has improved significantly compared to the historic lows of March 2009. Retail trade recorded in June 2010 showed an increase of 0.5% year on year. Furthermore, with a limited shopping centre development pipeline moving forward, demand and supply are set to remain balanced in the prime segment of the market.

According to Savills' Eri Mitsostergiou, “The impact of the negative economic sentiment is easing and retail activity is finding its equilibrium at new levels of demand and supply. The prime segment is broadly balanced, thus rents are stabilising in most locations. Prime retail assets are becoming the preferred investor target in the larger markets, and prime yields are hardening once again.”

In terms of rents, Savills reports that in about 75% of locations, shopping center and retail warehousing rents have stabilized compared to last year, and in the remaining locations they continue to fall. Average annual rental growth is negative 3.2% for good quality shopping centres as retailers focus on network optimization.

Allan Saunderson is a managing editor of Property Investor Europe and a contributor to GlobeSt.com.