Retail leasing markets are at a turning point as customers are allowed to shop again, delegates heard at Real Asset Media’s European Opportunities – Investing in Resilient Retail briefing, which took place online yesterday.
“We anticipate a swift recovery in retail spending,” said Tjard Martinus, director, European retail research & consulting, JLL. “The key drivers are pent-up demand and social consumption. The personal savings accumulated during lockdown will not be spent immediately, but they will eventually be spent on fashion, travel, restaurants, beauty and leisure.”
In 2020, Eurozone and UK households have saved €665 billion more than in 2019, according to bank HSBC. McKinsey’s Europe Consumer Pulse Survey predicts that 42% of European shoppers plan to spend their cash once restrictions are lifted.
Non-food sales are expected to bounce back the fastest. Between 2021 and 2025 across Europe total retail sales are expected to grow by 2.4%, with non-food sales increasing most rapidly (+5.5%) off a low base, while food sales only grow by 0.5%.
The strongest increase will be seen in countries like Italy and Spain that were hit the hardest by the pandemic. The JLL forecast is for non-food retail sales to grow by 8.5% in Spain, by 6.3% in Italy and by 6.2% in Spain, while Germany will see growth of 3.2%, well below the EU-27 average of 5.5%.
Governments’ support measures and job retention schemes have halted the rise in unemployment, thereby boosting consumer confidence. Current estimates are that 3.5 million people will lose their jobs in Europe and the UK during the pandemic, compared to 10.3 million during the GFC.
The economic recovery post-pandemic will play a crucial role. In China, which was the first to experience Covid-19 and the first to leave it behind, consumer behaviour has mostly returned to pre-pandemic times. “We’ve seen a broadening international expansion into tier-2 cities, most notably in the luxury sector,” said Martinus.
In the UK and US, where the mass vaccination programme has been most successful, there has been a significant increase in leasing activity, particularly in London, in major UK shopping centres and in New York City.
Focus moves from discounts to long-term agreements
“There was more activity in NYC in Q1 this year than in the whole of 2020”, said Martinus. “The focus has shifted from negotiating major discounts towards long-term agreements between landlords and tenants”.
In other European countries like France, Germany and Spain, where the recovery is slower, activity is more muted. “We’ve seen a cautious pick-up in leasing activity, with more incentives and step-rents,” he said. “Demand is driven by well-capitalised operators looking to grow market share.”
Across Europe, retailer demand for space is pivoting towards experience-led shopping destinations and accessible convenience-orientated retail places. We are likely to see consolidation and optimisation of networks and more capex investments in innovation and new formats.
“The retail market is changing,” said Martinus. “The accelerated change underway will bring clarity to retailers and investors on what space will remain relevant and productive.”