Published in: Vastgoedmarkt 10/23/2024

E-commerce, COVID-19, vacancy issues: various movements in the market have led to retail real estate yielding less than other sectors over the past decade. However, there is reason for optimism. Peter Koppers, manager of the retail fund at Achmea Real Estate, sheds light on the situation. Koppers invests with his fund of over 900 million euros in retail real estate in the nine largest cities in the Netherlands. The fund primarily focuses on neighborhood centers for daily shopping. "Dutch retail real estate has been significantly devalued over the past ten years. We have also seen that retail real estate has performed relatively worse than other sectors," says Koppers. "There have been significant movements, such as e-commerce, COVID-19, and vacancy issues in smaller and medium-sized cities, but we now see an attractive entry point for retail real estate emerging, as the user market, particularly in the large cities, is reviving. Consumers are rediscovering the retail spaces that matter. Additionally, there is demographic growth and an increase in purchasing power," he says. "The large cities are a magnet for millennials and young professionals, benefiting retail. The nuance is that large retailers are no longer opening new stores everywhere. They are opting for a selective policy, focusing on about ten to fifteen top locations in the Netherlands. That’s why we want to be there as retail investors."

Retail Rents Have Declined Significantly What helps is that retail rents have declined sharply in recent years. Koppers: "That’s why the return, the performance of retail real estate, has lagged. Those rents are now starting to rise again. Tenants can earn enough from their stores. This makes it possible for landlords to keep pace with inflation or even exceed it slightly. This offers the certainty that pension funds are looking for. What we also see is that the low valuations of retail real estate are distinct compared to other real estate sectors. In our retail fund, the Gross Initial Yield (GIY) is around 6.5 percent on average. When compared to the residential segment, which has a GIY of around 4.5 percent, it is clear where the premium for retail lies."

Sustainable Choices Achmea Real Estate assists pension funds as a retail investor in helping major retailers increase their revenue without interfering with their product offerings. While retailers decide what to sell, they also bear a broader responsibility, such as addressing climate issues, sustainability requirements, and corporate social responsibility. Koppers: "Retailers are responsible for the layout and fixtures of their properties, but Achmea imposes high standards and provides advice to encourage sustainable choices. This applies, for example, to foodservice tenants, who are encouraged to offer healthy products." Retailers have understood this well, according to Koppers. "There are many initiatives in the retail segment to manage staff more efficiently. A more efficient layout of a store is also becoming increasingly important. With a large, clear floor plan, you need less staff. Furthermore, the use of technology is becoming more significant. Supermarkets with self-checkout kiosks are an example of this. They are also being used more frequently in the non-food sector, such as by Decathlon, Zara, and Hornbach."

Regaining Appetite It makes sense that Achmea Real Estate targets institutional investors with its retail report, Koppers believes. "That is the target group we work for. There is a very large private sector in the Netherlands that invests in retail real estate. Additionally, there are many smaller and regionally focused private investors in retail real estate. We have several publicly listed retail funds, as well as a few larger institutional retail funds at Achmea, Altera, Bouwinvest, and ASR. We also see some limited partnership-like initiatives among private parties dealing with retail real estate, such as Meerdervoort." "But when I look at institutional retail real estate, I see that pension funds have slightly reduced their stake in retail real estate in recent years. They have been focusing more on other sectors, such as residential, healthcare real estate, and logistics. That could change. We believe that the fundamentals of retail are currently strong. This report is thus an attempt to rekindle the appetite of institutional parties for retail real estate."