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FRIDAY LETTER: Europe’s high street is back in fashion

This week BVK and Hines established a €1.3 billion war chest aimed at investing in European high street properties. Their strategy is less of a surprise than you might think.

Surprising. That was the adjective used by certain property professionals when asked for their thoughts on Tuesday’s announcement of a €1.3 billion tie-up between German pension Bayerische Versorgungskammer (BVK), and US developer-to-fund manager Hines to invest in European high street retail.

At first glance, the mild shock from these professionals was understandable. A strong swathe of high street locations across the region are quite visibly struggling, after all. The rise of e-commerce is just one of the myriad reasons some investors balk at the idea of owning high street retail assets at any kind of scale again.

But there’s more to consider, Hines executives told PERE shortly after the news broke. They said the mandate with BVK would focus on the prime end of the high street, for one. They agreed that in many cities the secondary streets are often suffering, but they countered that in central locations demand for prime retail is growing very strongly.

On the threat of e-commerce, they contended that although one would expect there to be less happening in shops, the contrary is in fact happening. The rationale was that big brands want to be present in the best high streets and they want bigger space to display all their products so the customer can feel the product line – even if the final purchase is online. Subsequently, there is increasing competition between the major retailers for the best space on the high street, and as such, value on the high streets is growing.

The Bavarian institution and the Houston-based manager are targeting core-plus, value-add and development retail assets in prime locations on high streets and argue a broad mandate increases the opportunity set. Such a strategy would also suit the current physical state of a lot of retail property across Europe which has received little investment since the global financial crisis and is therefore in need of repositioning.

Coincidently, a strong appetite for high street retail was reflected also this week at a seminar held in London by professional services firm PWC and property association Urban Land Institute, where they launched a sector trends report which found that high street retail was the most popular sector among investors. Among the 550 sector professionals polled for their annual Emerging Trends in Real Estate report, 72 percent picked high street retail as the sector of choice.

Considering that, perhaps it is not so surprising the high street was so sizeably on Hines and BVK’s wish list after all.