Why private investors are shopping for retail real estate

Investment in retail has for most of the past decade been dominated by institutional investors. 

But in recent months, private investors have been increasingly getting in on the act, with a greater share of investment in retail real estate now in the hands of private capital and family offices, according to JLL data.

Private capital’s share of overall investment in retail across EMEA more than doubled between the middle of 2022 and mid-2023 to 15%, according to JLL data. At €1.76 billion (US$1.88 billion), investment by private capital in retail was at its highest for a six-month period since 2019. In Spain for example, family offices and private investors this year bought units in Madrid, while in France, Vicartem REIM sold the St Hermentaire Draguignan retail park to a private investor.

Private capital has long invested in real estate. But the shifting demand to retail comes as larger investment groups are pausing for thought, “creating a chance for private investors to invest in a less competitive market”, says Sandra Ludwig, Head of EMEA Capital Markets at JLL.

“Private capital is expanding its footprint and gaining momentum – and that’s due to both economic and cyclical shifts,” she says. “There’s a pause among larger, traditionally more active institutional investors, while at the same time repricing of retail assets is opening up opportunities, particularly those smaller lot sizes,” she says.

Part of the change is rooted in the debt markets, where private investors can be nimble.

“Not only are investors in smaller retail assets, up to €30 million ($32 million), often less dependent on finance,” Ludwig says, adding that they also often have a so-called house bank for the long-term, which eases access to more attractive debt terms and, in turn, helps speed up transaction processes.

“There’s definitely a strong degree of agility to how private capital operates when both on and off market opportunities arise,” she says. “They can change strategy and pivot quite quickly. And smaller sales processes are often preferred, with less appetite for bidding process over several rounds.”

As private capital continues to flow, geopolitical turbulence across the globe could also be a factor, with investment decision-making among institutions impacted by instability and, in some cases, family offices looking to invest in locations they perceive as safe havens.

“Caution for some, sure. But we also see bigger retail assets picked up by domestic investors,” Ludwig says, pointing to German family office Greve’s purchase of a Hamburg shopping centre from Generali in July.

Family offices sometimes act like larger scale institutions by putting special purpose vehicles in place, or appointing wealth managers.

However, on the ground, the story is somewhat different, Ludwig explains, with private capital often capable of handling the day-to-day management of single retail assets.

“While we do see some retail real estate being handled by third party asset managers, properties such as high street retail are often simply managed in house, with a day-to-day janitor or caretaker in place,” she says.

With offices, which are often located on floors above, going through significant disruption due to hybrid work patterns, Ludwig says there are opportunities in some less prime locations for private investors to look at conversion into apartments, depending on costs of capex and rents.

“It’s something we are yet to see but I wouldn’t doubt private capital’s ability to take on redevelopment and conversion in such scenarios,” says Ludwig. “Development expertise is there and could be put into action with ideas for new, more mixed-use concepts.”

More broadly, how big a role private capital plays in retail real estate over the coming months remains to be seen.