As much as €4.4 billion-worth of European retail assets are expected to be brought to market in the next three years through the termination of 11 retail-focused real estate funds, according to real estate research organization INREV.
The group’s latest fund termination study estimates a total of 50 European closed end non-listed real estate funds, across different strategies and sectors, will terminate by 2021, resulting in the offloading of €13.2 billion of assets.
Retail funds take up 22 percent of funds nearing their expiry period.
Calling the volume of retail assets expected to be offloaded surprising, Lonneke Löwik, INREV’s chief executive officer, said in a release the results “question how managers will deal with the challenges of bringing assets to market at a time when pricing looks set to come under increasing downward pressure.”
Retail-focused funds also represent around 40 percent of the single-sector funds expected to terminate between 2019 and 2021. In total, there are 28 single-sector funds representing around 56 percent of the 50 funds due to terminate in the three years.
INREV surveyed on 32 of the 50 funds set to terminate in the next three years. This universe is composed of two groups: funds with termination dates between 2016 and 2018 that have not yet been liquidated and funds with termination dates between 2019 and 2021.
According to the survey, most retail funds terminating before 2019 have failed to liquidate due to the poor performance of the retail sector. These funds have struggled to “sell their properties at a good price and are waiting for the sector to recover,” the survey noted.
For retail funds terminating before 2021, the report highlighted the likelihood of these funds extending their fund life as well, given market conditions.
The performance of the retail sector has struggled amid continuing pressure from the growth of e-commerce and its impact on the brick-and-mortar retailers. In 2018, for instance, European retail returns were as low as 2.9 percent, well below the 7.8 percent across all real estate sectors, according to market indices provider MSCI.
In addition to retail funds, the UK-focused single country funds are also struggling to liquidate. Continuing political instability has resulted in delaying the liquidation of UK-focused funds that were supposed to expire before 2019, according to INREV.
There are 11 UK-focused funds terminating between 2019 and 2021, including the pre-2019 funds that have extend their fund life. The liquidation of these UK-focused funds will potentially inject €3.9 billion NAV of assets in the market in the next three years.