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Amsterdam, September 2015

REDEVCO’S VIEW

MARKET ATTRACTIVENESS OF CITIESWHERE TO INVEST IN RETAIL PROPERTY

PROPERTY MARKET

CITY QUALITY

POPULATION

ECONOMY

Soft factors increasingly important for a city’s attractiveness

At the start of this study Redevco hypothesised that the increasingly critical consumer attaches more and more value to the

quality of the shopping environment, in addition to the shop offering. The most attractive shopping destinations are those

which offer a pleasant atmosphere and where shopping can be combined with other opportunities such as dining out and

cultural experiences.

The City Attractiveness Model demonstrates that, in addition to the fundamentals like economy and demography, soft factors

are indeed increasingly important in determining a city’s overall attractiveness for High Street investments. Factors like the

presence of a relatively high share of creative professions, a high number of historical points of interest and a relatively young

population significantly contribute to the explanatory power of the model. The research also shows that rental value growth and

yield compression are strongest over time in those cities that score well on soft factors.

ON THE BASIS OF WHAT ARE THE CITIES RANKED?

Redevco’s View: Quality will continue

to outperform

Structural change in the retail land-

scape is causing polarisation in terms

of property performance. Our City

Attractiveness Model contributes to

our understanding of what drives

performance in retail real estate

investments and helps us to make

the right investment decisions in a

relatively opaque market. But it has

also strengthened our belief that

High Street retail in Europe’s most

attractive cities will continue to out-

perform as it combines all the things

that the modern consumer is looking for.

Escalating location risk…

As a pan-European investment manager specialised in retail

property, it is our business to identify those markets that

contribute to the success of the retailer and that of our investors

- and thus to our own success - now and in the future.

Over the past years location selection has become even more

important. Location risk has leapt up the agenda as, amongst

other factors, e-commerce is changing the retail landscape

at an astonishing speed.

…Reinforcing the need for a navigation tool

This volatile environment requires a well-substantiated view

on the most attractive cities for our business. During the

past three years, Redevco has carried out extensive research

to develop its City Attractiveness Model. It now ranks more

than 800 European cities in terms of attractiveness for High

Street investments and is used to inform investment decisions

and develop business strategies.

Redevco’s Research & Strategy team has combined best-in-class data derived from 39 sources into 19 different and meaningful

indicators with regard to various aspects of retail real estate. The indicators are grouped into four categories: population,

economy, retail property market and city quality. These are weighted to calculate a city’s attractiveness score. This weighting is

enriched with local knowledge of Redevco’s seven country teams that enables the locations to be grouped into five quality baskets

ranging from ‘Excellent’ to ‘Poor’. Extensive scenario analysis and testing of the results has now resulted in a robust model,

which is able to statistically explain nearly 70% of the variance in rent and yield levels between the cities included in the model.

THE JOURNEY FROM A COLLECTION OF FACTS TOWARDS A WELL-SUBSTANTIATED VIEW

THE NEED FOR A CITY ATTRACTIVENESS MODEL

PROPERTY MARKETPOPULATION CITY QUALITYECONOMY

Population Size

CatchmentArea

FuturePopulation

Growth

EmploymentGrowth

Disposible Income

Volatility

Retail Sales per Capita

Retail Sales Growth

Unemployment

Yield LevelRental Level

Deal FlowInternational

RetailersVacancyDevelopment Pipeline

Average Age

Tourism

Historical Points of Interest

CreativeProfessions

OUTCOME

REDEVCO CITY ATTRACTIVENESS MODEL

Vienna, AustriaAmsterdam, NetherlandsParis, FranceLondon, United Kingdom

1. London 14. Barcelona

2. Paris 15. Rome

3. Munich 16. Zürich

4. Berlin 17. Cologne

5. Hamburg 18. Prague

6. Vienna 19. Frankfurt

7. Stockholm 20. Stuttgart

8. Milan 21. Düsseldorf

9. Amsterdam 22. Glasgow

10. Copenhagen 23. Edinburgh

11. Manchester 24. Dublin

12. Madrid 25. Istanbul

13. Oslo

CASE STUDIES

The City Attractiveness Model enables Redevco to select the most attractive cities in Europe for retail real estate investments based

on analysis of various indicators. Every city has its own story. The two examples below of Stockholm and Bordeaux illustrate this.

Stockholm, Sweden

Stockholm belongs to the Excellent category, which means it

has been awarded a very high attractiveness score. This score

can partly be explained by the size of the population and catch-

ment area. The city is also known for a stable economy and an

affluent population which, in European perspective, tends to

spend a relatively large share of its disposable income on retail.

Furthermore, Stockholm is regarded as a vibrant city with a very

high-quality living environment and an attractive historical city

center, much in favour with tourists. All of these characteristics

result in a strong demand from domestic and international

retailers, such as H&M, Zara and Desigual.

Bordeaux, France

Bordeaux has been awarded a Very Good classification. The cities’

key strength is that it has no real weaknesses. Although significantly

smaller in terms of absolute size compared to Stockholm, Bordeaux

clearly functions as a regional shopping destination with a relatively

large catchment area. Because of the combination of strong funda-

mentals, a rich history and growth potential Bordeaux is a very

attractive city for retailers, investors and tourists. The attractiveness

of the city in combination with ongoing structural inner-city develop-

ments aimed at a further revitalization and rejuvenation of the city

inspired Redevco to (re)develop Promenade Sainte Catherine, in the

heart of the historical city centre.

REDEVCO’S MOST ATTRACTIVE EUROPEAN CITIES FOR HIGH STREET INVESTMENTS

Top 25: Solid and best in class

Out of the more than 800 cities ranked in the City Attractiveness Model,

the cities in the table on the left are the Top 25 most attractive cities.

During the past three years in which Redevco has developed and tested

the City Attractiveness Model, the Top 25 has remained nearly unchanged.

The quality and performance of these cities remains undisputed. London

and Paris hold the top two spots, reflecting their status as global retail

destinations commanding the highest European prices and rents. German

cities occupy seven of the 25 highest places, as the ‘weight of money’ from

investors targeting the market has led to a solid performance for retail property.

Top 200: Redevco’s investment-grade cities

Only about 25% out of the more than 800 cities that have been ranked in the City Attractiveness Model have been identified as

investment-grade cities by Redevco, which means that the company is interested in acquiring and managing real estate in these

cities. This assessment has been made by combining the score from the City Attractiveness Model with the judgement from

Redevco’s seven local teams in order to group the cities into five quality baskets ranging from ‘Excellent’ to ‘Poor’. Only those cities

that fall into the three best categories (‘Excellent’, ‘Very good’ and ‘Good’) are deemed investment-grade. Redevco uses the quality

baskets to stipulate investment strategies. The higher the quality grade, the lower the risk and associated return expectation.

Bigger cities have better prospects

Retailing is fundamentally a consumer-oriented activity. The first category in the model therefore

concerns ‘Population’. Size, dynamics and nature of the population in a city are of fundamental

importance for retailer performance. The drawing power of the city and the competition in the

surrounding areas is also essential when assessing a city’s quality for retailing. This makes

catchment area characteristics of significant value as well. Ultimately, it is the bigger cities that

are deemed most attractive in this category. Research shows that urbanisation is causing

bigger cities to have better growth prospects at the expense of smaller ones. However, further

analysis has shown that a big population in itself is not necessarily enough.

The crossroad of investor and retailer demand

For Redevco, the ideal retail real-estate investment market combines a healthy stock, with

strong retailer and investor demand, but in reality a situation of imbalance often occurs. For

instance, while investment activity is mostly limited to the most mature countries in Europe,

retailer demand generally can be strong in a number of developing economies too. Also,

investors are sometimes willing to pay high prices for assets in cities where retailer demand

is not so strong. In this category we choose to reward low vacancy rates and high investment

volumes as well as the presence of international retailers. We have taken the view that higher

rents and lower yields indicate higher demand from retailers and investors.

DELVING DEEPLY INTO THE CONTENT OF THE CITY ATTRACTIVENESS MODEL

Balancing retail sales volume with future growth and economic stability

The category ‘Economy’ is used to quantify the quality of the population in a city. A big popula-

tion does not necessarily translate into high retail sales. High unemployment or relatively low

prosperity can result in adverse spending behaviour or negative growth prospects. Also, some

areas in Europe that are displaying low retail sales volumes at the moment are expected to

experience the highest growth rates and will therefore be much more attractive in the future.

Acknowledging that both the current and future levels of retail sales are important, we have

combined variables relating to actual and future retail sales levels. In addition, this category

looks at economic stability.

Soft factors matter

There is more to attractiveness than what has been described above. The shopping experience

depends to a large extent on soft factors that we take into account in the category ‘City Quality’.

For instance, the presence of creative professions is an indirect indicator for city attractiveness.

Creative people choose interesting cities to live in and also generate a certain atmosphere.

Tourism is an important indicator for attractiveness as well. Not only because tourists generate

retail sales, but also because they select attractive cities, very often with a rich history.

Statistical analysis shows evidence that cities with a good score on soft factors, in addition to

fundamentals like population and economy, show a better property performance over time.

0 10

City Attractiveness scorePopulation Size

Catchment AreaFuture Population Growth

Economic VolatilityDisposable Income

Employment GrowthUnemployment Rate

Retail Sales per CapitaFuture Retail Sales Growth

Vacancy RateDevelopment PipelineInvestment Deal Flow

Rental LevelYield Level

International RetailersCreative Professions

TourismAverage Age

Historic Points of Interest

0 10

City Attractiveness scorePopulation Size

Catchment AreaFuture Population Growth

Economic VolatilityDisposable Income

Employment GrowthUnemployment Rate

Retail Sales per CapitaFuture Retail Sales Growth

Vacancy RateDevelopment PipelineInvestment Deal Flow

Rental LevelYield Level

International RetailersCreative Professions

TourismAverage Age

Historic Points of Interest