09 Mar The opportunity in Convenience Real Estate
One clear lesson of the COVID-19 pandemic is that not all retail is the same. In a market analysis by CBRE of retail parks across Belgium, the research found that for key metrics such as vacancy rates, rents, yields, capital values and footfall, retail parks have proven to be a resilient value proposition and have performed better than high streets and shopping centres both during and after lockdowns. These findings are supported by research in many other markets as well as by the performance of our portfolio of 70+ retail parks across Europe.
Footfall in retail parks has bounced back strongly, especially in those anchored by a supermarket, with consumers now looking for ‘safe shopping’. The ability to arrive by car to an outdoor parking area with direct store access, and then shop in large retail units with low consumer density has strongly favoured the retail park format.
It has also become clear that from a valuation perspective, the longstanding advantages of the retail park proposition based on convenience, essential shopping and value for money has led valuators and informed buyers to increasingly decouple retail parks from other segments of retail. In line with this, Savills has highlighted convenience retail, such as supermarkets, retail warehouses and convenience stores in or around densely populated areas as one of their top European Hotspots for 2021.
Beyond traditional retail
Retail parks have come a long way from the individual ‘Big Box’ units on urban periphery locations of 10 years ago. Food anchoring has always been a key aspect of the retail park concept and still remains an important driver of daily footfall today.
But today, the retail park concept has evolved beyond traditional retail and has moved into what we call ‘convenience real estate’. Sited on urban infill locations, these convenience real estate projects now offer restaurants, leisure, fitness, medical practices and pharmacies, click and collect pick-up points, electric car charging stations, and many more consumer service needs. In addition, they also cater for mixed-use, with SME units, small offices, self-storage facilities and other light industrial uses.
Our Dansaert development in Brussels, opened in 2015, is an excellent example of a mixed-use convenience real estate project, featuring a retail park, an SME business park, and a purpose-built industrial unit which was secured by Mitiska REIM and executed jointly with a specialist partner.
The increasing demand for convenience real estate
For the past several years we have seen an accelerating opportunity in convenience real estate driven by the converging trends in retail, urban logistics and multi-let light industrial, and the increasing demand for urban infill sites that offer accessible locations, affordable buildings and flexible design to a growing range of end-users.
Several social-economic megatrends are underpinning this evolution:
- Urbanisation has led to growing cities in terms of population as well as surface area. With around 75% of Europe’s population now living in urban areas, demand is accelerating for retail as well as services from the consumers that live, work and play in these areas.
- Mobility patterns are changing as well – inner-city congestion and emission charges are encouraging consumers to seek easily accessible locations on urban ring-roads, the traditional base of retail parks, with sites also accessible through multimodal access such as public transport or bike.
- Consumers are becoming more and more time-constrained and are therefore increasingly looking for convenience when shopping and accessing services. At the same time, consumers are now better informed about products and prices, leading them to search out value-for-money offerings.
In combination with this, the increase in e-commerce sales over the last year has had a significant impact on the demand for logistics space across Europe. This surge in demand has raised the bar in terms of meeting consumer expectations for quick and timely deliveries and is driving the need for last-mile logistics bases in urban locations.
Demand for multi-unit light industrial schemes is also on the rise, as the growing number of small and medium-sized businesses look for convenient sites close to their customer bases as well as their employees in which to expand their operations. The flexible design of convenience real estate developments in a mixed-use setting is ideal for catering for the differing business models and space requirements of SMEs.
Looking ahead, our view as a specialist investment manager is that we expect to see increasing recognition of retail parks and the broader opportunity in convenience real estate, which will create exciting new investment opportunities in this niche segment of the market.