Despite the challenges facing retail real estate, private equity real estate (PERE) deal makers have kept faith in the sector, according to new research from Preqin, with global fund-raising volumes for the sector reaching a 10-year high last year.
While retail-focused private real estate warchests have expanded steadily since 2012, surpassing $30 bn (€25 bn) annually, 2017 was a post-global financial crisis record, as 79 vehicles secured $42bn, and 2018 figures so far have already seen funds secure $19bn.
'The retail industry is facing a combination of several serious challenges,' said Oliver Senchal, head of real estate products at Preqin. 'However, both fundraising and dealmaking levels have stayed strong in recent years.'
According to the five-year study, the UK and by extension, London, continue to be the largest European markets for PERE retail activity. The UK PERE retail market has proved almost twice the size of the German market, with $29 bn worth of completed retail deals in the UK since 2013, compared to $15 bn in Germany.
By city, London represents 14% of UK deal flow, while in Germany deal flow is more spread out: Freiburg, Hamburg, Berlin and Munich represent 4%, 3%, 2% and 2% of German deal flow respectively.
Biggest deal in Birmingham
Despite London's significance, the largest PERE deal for a UK-based single retail asset since 2013 was completed outside London. Birmingham’s Grand Central, anchored by John Lewis, was bought by Hammerson from the city council in January 2016 for £335 mln (€380 mln), with the deal also including a new 400-space car park.
The 435,000 ft2 (40,400 m2) asset is located above the busiest train station outside of London and provides a mix of premium fashion and high-street brands, many of which were new to the city, Preqin said.
More recently, 2017 saw two London-based shopping centres acquired for over $100 mln. In East London, the Stratford Centre, which neighbours Westfield, was bought by Frogmore Real Estate Partners for £141mn from Blackstone Group and Catalyst Capital.
The other transaction involved Invesco Real Estate acquiring a 50% stake in the Southwest London asset Southside Shopping Centre for £150 mln.
On mainland Europe, the largest German PERE retail single-asset deal since 2013 was for Häuersteig 5.
Mitiska REIM, in partnership with Frankfurt-based real estate firm Zamberk Real Estate Ventures, acquired the 400,000ft2 asset in a €500 mln deal in September 2017. Initial value-add plans include physically upgrading and visually improving both the site and the shopping experience.