- Green Street’s European Commercial Property Outlook exposes the increasing divergence visible among European real estate sectors.
- While asset values for office and industrial sectors are at all-time highs (up circa 10%) and yields are at all-time lows, this is in stark contrast to retail, which is undergoing a paradigm shift due to ecommerce.
- Over the next five years, operating fundamentals in the industrial and office commercial real estate sectors are expected to outperform retail by circa 20%.
Pan-European retail spending growth remains in positive territory; however, with ecommerce likely in the middle of a robust growth phase, Green Street believes brick-and-mortar retail sales will continue suffering.
The result is negative for retail real estate, but largely positive for industrial, stemming from strong tenant demand – especially for locations close to population centers with lower-than-average ecommerce penetration rates.
Despite retail woes, Green Street notes that Pan-European commercial real estate values rose 5% in 2019 and are set to increase again by mid-single digits in 2020, with overall returns screening attractive relative to investment grade and high yield bonds.