To make the most of the retail asset class, it is critical that investors deploy a selective approach and work with world-class asset management partners to identify and execute the best deals while managing risk in their portfolios. Retail is incredibly broad and varied, ranging from shopping centers to neighborhood supermarkets, out-of-town outlets to flagship stores on premier high streets.
Change has always been at the heart of retail. New trends arrive along with new ways of shopping. E-commerce is profoundly transforming the sector at a rapid pace, but many stakeholders are failing to adapt and are disappearing altogether. Technology is just the latest development in the complicated, exciting retail landscape. Regional variation adds yet further complexity as trends vary widely depending on location. What works in one center in Europe might be poorly suited to another.
Location matters
Shopping centers usually represent one of the best form of assets for investors looking for long-term investments, taking risk/yield aspects into consideration as well. Retail premises can offer stable, long-term revenue and with the relevant asset management expertise, risks can be effectively mitigated. Flagship stores in premier city center locations, and sizable and dominant shopping malls or prime outlet parks managed by best-in-class operators are a focus for Allianz. By being selective, we have been able to develop a bank of experience and partnerships to optimize our approach to future deals.
Debt is an established and fast-growing business line and represents one of the three main pillars of our investment strategy. Commercial financing is a key instrument for portfolio diversification: at €16.2 billion, it represents 29 percent of our global real estate assets. Retail financing is also at the heart of our debt strategy. The selection for financing follows similar criteria as for equity investments and focuses on core and core-plus assets, and on a more selective approach for value-add profiles. A recent example of this is the financing of the future flagship Apple store, the Haussmannian building, located on the best part of the Champs-Elysées in Paris, which attracts around 100 million visitors each year. The asset is currently undergoing a comprehensive restructuring program.
Partner wisely
While the quality of the asset is clearly important, successful financing of assets is largely reliant on the quality of the sponsor and the retail specialized asset manager, both in terms of deal structuring and sustainable management going forward. The financing of the Liffey Valley Shopping Center in Dublin, Marineda Shopping Center in La Coruna and CentrO in Oberhausen are further examples of where we have financed prime dominant retail assets. With a growing retail landscape, complementary investments in logistics have also become an attractive asset class, already proven by several investments around the world, including the financing of a logistics portfolio in the Czech Republic in 2017.
While the retail sector in Europe is undoubtedly undergoing profound change, we believe it will remain a core asset class for real estate investors across direct, indirect and debt investments. But, more so than probably any other sector, assets, opportunities and partnerships need to be carefully considered, with a particular focus on the long-term sustainable quality of location and retail-specific asset management capabilities.
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