A move toward European retail

Abstract

Purpose

This report aims to examine the sectoral composition of Europe's real estate investment market, the factors likely to drive a shift in portfolio composition away from the office sector and toward retail, and how this will likely occur.

Design/methodology/approach

The article examines the sectoral breakdown of Europe's real estate market and describes the shift in the UK's sectoral breakdown over the past two decades. Economic convergence in Europe, the increasing number of third‐party fund managers offering access to the performance of retail assets, the historically superior risk‐adjusted returns of retail in mainland Europe are noted as factors that will drive the shift. Eight mechanisms that could help achieve the shift are described.

Findings

Many investors in European real estate are modifying strategy to capitalise on the expected outperformance of the office sector over the short to medium term. However, as the office rental recovery matures and the potential for outperformance diminishes, a substantial, long‐term increase in the portfolio weightings of retail and other property types will likely occur in mainland Europe. Improved asset and fund management infrastructure has made retail assets more accessible to investors. Retail has tended to outperform offices over fairly long time horizons and will likely continue to provide superior risk‐adjusted returns.

Originality/value

Many investors in European real estate have recently been making tactical allocation decisions to benefit from the potential upside offered by offices. This analysis suggests that at a strategic level, investors in mainland European real estate should diversify away from offices (now about half of investors' portfolios) by raising allocations to other sectors.

Citation

Skinner, D. (2007), "A move toward European retail", Journal of Property Investment & Finance, Vol. 25 No. 2, pp. 166-178. https://doi.org/10.1108/14635780710733843