Emerging Trends in Real Estate® Europe 2006 - Urban Land Institute

c h a p t e r 4
Retail continues to be the jewel
in the crown.
Perspective
An industry struggling for product has shifted the sector
rankings slightly for 2006, illustrating a broadening
appetite for real estate in a variety of sectors.
The last two years saw a consolidation of investor interest
and appetite towards retail, warehouse, and residential, but this
year only retail holds its place at the top as warehouse and residential
move down the rankings—behind alternative sectors
such as hotel and mixed use. City centre office, though still
low in the rankings, has shown significant increases in its rating,
and now shows modestly good prospects.
Of the ten property types in our survey, eight have modestly
good prospects for total returns while two have fair
prospects. This is a significant improvement over last year,
when only three sectors had modestly good prospects and six
had fair prospects.
Overall, there is a general upward trend in how sectors are
rated; the top spot is rated at a 5.9 rather than 5.8 and the
bottom spot—this time manufacturing—takes the place with
a ranking of 4.8 compared to business parks and out-of-town
offices with 4.5 last year. This would indicate that the larger,
and still growing, appetite for property has seen investors’
optimism for all sectors elevate as they desperately seek those
rare sparks of opportunity.
Retail continues to be the jewel in the crown as retail
parks and shopping centres tie for first position for total
return prospects. Clustered with these two retail categories
near the top are hotels, which moved up with strengthening
fundamentals, and mixed-use properties, a new category for
this year. Mixed use, coming in at a respectable fourth place,
illustrates that all those trends around sustainability, regeneration,
and city centre development are very real and potentially
profitable for investors.
The middle of the total return rankings are anchored by
the warehouse sector, which dropped a bit in the rankings
but held steady with last year’s rating of 5.7 (modestly good)
for total return prospects. The middle is rounded out by
street retail, residential, and city centre office. Street retail is
not expected to fair as well as the more suburban retail products.
Residential prospects have fallen, in part due to fears of
overheating in two strong residential markets—the U.K. and
Spain. City centre offices, while still low in the rankings, have
shown significant improvement, and the sector is now viewed
as a good “buy” sector for 2006.
Clearly, the least-favoured sectors for 2006 are business
parks/out-of-town office and manufacturing. The business
park sector actually moved up from its bottom-place spot last
year; with more optimism for a demand-led recovery across
Europe, investors are clearly thinking that there could be just
a glimmer of opportunity for good, standard, cheaper Class A
space on the accessible edge of cities, particularly when put-
Emerging Trends in Real Estate ® Europe 2006 49