High street retail: perpetual value

The ASR Dutch Prime Retail Fund and its predecessors have been enabled by its investors to acquire property at the most central locations in the top high-street cities of the Netherlands. The Fund’s selection of inner-city property has met with considerable success and has been a major driver for positive capital appreciation over the last few years.

Shoppers in search of experience

As ASR DPRF’s tenants become more dependent on tourism, on creating brand awareness and providing an immersive shopping experience to their customers, top retail cities will come to represent a higher percentage of the Fund’s NAV. The Fund already owns more A1 assets in Amsterdam than any other institutional investor and is very well represented in other top destinations such as The Hague, Rotterdam and Utrecht. For the Fund, this trend towards urbanism and urban attractiveness has been positive, but it will continue to shape the retail market. Tourism has pushed rents up in the major Dutch cities, as tourists are by default the hedonistic shoppers targeted by the Fund’s tenants and outnumber local customers in many areas. Furthermore, increasing numbers of shoppers are looking for an authentic experience and will therefore favour locations which provide authentic shops, from traditional high street stores to property such as De Haagse Passage in The Hague and Lijnbaan in Rotterdam. These high street locations are so iconic that they give visitors an immediate sense of place and, as such, they are likely to outperform more generic indoor shopping areas, inner-city malls with multiple retail floors, and many department stores. 

Food outpaces fashion

With respect to type of retailer, as stated last year, food and services will continue to play a more significant role in high street cities and become more important tenants for the Fund in the process, mostly by moving into former fashion or shoe stores. The Fund is adapting by acquiring assets such as Steenweg 56 in Utrecht or Spui 10 in The Hague, which are key examples of top-performing F&B stores in high street cities. 

Decline in shopping on the outskirts

The Fund is also disposing of assets with a high risk of future obsolescence or which cater to a small portion of the retail market, since these buildings are less flexible in terms of fulfilling other inner city purposes. Lastly, the Manager has identified a renewed scarcity in the city centres and a clear lack of development in other retail areas. As retailers gravitate towards the core shopping area, secondary and tertiary shopping areas on the outskirts are decreasing in size.

Subdued yields compression

Yield compression over the past few years has been flatter for retail compared to other major asset classes (residential, offices and logistics) and in some countries, gross yields for retail are now higher than office or logistic yields. This results in favourable conditions for investing in supercore retail real estate, with a solid spread, a perpetual value driver, and returns linked to continued urbanism. 

Prime retail has been a main reason for the continued outperformance of the Fund. However, as past performance is by no means a reason to sit back and relax in the shifting retail sector, the manager discusses trends shaping the future of high street retail in the Annual Report 2018. The article can be read here. High street retail has been, and will be, at the forefront of the ASR Dutch Prime Retail Fund. However, in light of the trends mentioned in the article, the use of these properties and their presence in the Fund’s Portfolio will change.