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November 12, 2019

(Photo by Sean Gallup/Getty Images)

As areas of Europe’s retail sector struggles against economic headwinds and the impact of online, portfolios of food retail assets are changing hands between investors – most notably in the Nordics and Germany.

Investment in supermarket real estate in the first half of this year accounted for 13 percent of overall investment in retail, double what it was in 2016, according to JLL.

“The grocery sector is performing strongly in Europe and offers defensive qualities such as a consistent flow of consumers, long leases and tenant diversification,” says Emma Tattersall, retail capital markets director at JLL. “At a time when some investors are turning away from retail in general, grocery retail is staying firmly on the shopping list.”

Germany and Nordics hotspots
In recent months, assets in Germany, Finland and Sweden have changed hands. One reason they’re proving popular is that classic real estate fundamentals, such as location and credit-worthiness of tenants, are easily verifiable.

“Being in a dominant and accessible location in their catchment areas is a big factor for investors,” Tattersall says. “But a grocery store’s main credentials are its household name and reputation.

“That’s a pretty persuasive offer for investors looking for reliable income.”

Macro-economics are playing a part, with consumer purchasing power rising in countries such as Finland and Germany, where propensity to buy is on the rise. Food is an area where people quickly upgrade when they have more disposable income. Spending on grocery goods in Europe is expected to reach US$2.29 billion by 2022, according to retail analysts IGD.

Earlier this year, a portfolio of 27 German assets was sold by Patrizia Immobilien for €100 million to Marathon Asset Management. Germany’s four largest food retailers, Aldi, Edeka, Rewe and Schwarz-Gruppe account for around three quarters of the rental income.

Portfolios are a popular choice for investors offering immediate scale and the ability to capture a significant share of the grocery market in that geography, says Tattersall. In Sweden, a €87.6 million portfolio of 50 assets, including 43 grocery stores, was sold late last year by Sveafastigheter Fersen II, co-owned by Partners Group, to Sweden’s Tre Kronor Property Investment.

Food for thought
Grocery store assets – as well as grocery-anchored local shopping centers – are also regarded as more resistant to the rise of e-commerce than other retail sub-sectors.

However, the take-up of online shopping varies greatly depending on geography. French and UK stores have been fastest to add online services, but even in Europe’s more advanced home delivery markets, they still count for less than a tenth of overall grocery spending.

“Even with home delivery of groceries rising, investors know that grocery stores in good locations are a defensive investment,” says Tattersall.

Last year, a new grocery-anchored real estate specialist, Cibus Nordic Real Estate, was set up by investment bank Pareto Securities. The Stockholm-listed firm paid €767 million for a portfolio of 123 grocery stores across Finland sold by Helsinki-based Sirius Capital Partners.

“There’s a healthy mix of investment managers with grocery stores in their portfolios and specialist, pure-play platforms,” says Tattersall. “The more a manager can offer investors the ability to simultaneously acquire, develop and manage these properties, the more likely they are to be backed.”

Germany’s largest food retail-focused investment fund, Greenman’s OPEN fund, continues to pick up assets both from other investors, as well as from the balance sheets of German grocery chains. In March, Greenman bought €143 million of food retail properties. In a sale and leaseback deal, Edeka sold four stores from its Minden-Hannover arm to Greenman, while a further 29 stores were picked up by Greenman from investor TLG Immobilien.

Having divested three cash & carry sites to LaSalle Investment last year, German food retailer Metro recently sold a portfolio of its Makro stores in Alicante, Bilbao, Badalona, Zaragoza, Palma de Mallorca and Valencia.

Grocery retail should continue to prove attractive for those investors seeking strong, stable returns for longer periods, says Tattersall. Plus, as grocery chains look to raise capital to fund potentially costly home delivery services, more real estate could come onto the market.

“There’s still a wide range of grocery chains across Europe who have yet to explore the capital-raising strategy of sale-and-leaseback, so more opportunities could emerge.”

Click to find out what Lagarde at the helm of the ECB will mean for real estate investors.

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Emma Tattersall

retail capital markets director at JLL.

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