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Two-paced recovery ahead for resilient European retail

The recovery is underway and the retail market will prove its resilience, even if it may shrink in size, experts agreed at Real Asset Media’s European Opportunities – Investing in Resilient Retail briefing, which took place online recently.

“The retail market space will be smaller,” said Mike Bellhouse, director, head of retail investment international capital, JLL. “Transaction volumes in Europe are usually around €50 billion, last year they declined to €30 billion and in future we expect them to be between €30 and €40 billion.”

Mike Bellhouse, Director, Head of Retail Investment International Capital, JLL

There is likely to be a short-lived bounce out of the pandemic and then the situation will normalise.

“It will be a two-paced recovery in Europe,” said Bellhouse. “In Germany there’s a natural instinct to save, in Southern Europe they are ready to spend again. But I believe the shopping centre universe will come back.”

There will be changes in the market that will prove it can be flexible and adapt to changing demand.

“We’ll see a shrinking of the total Gross Leasable Area in the market, but some products will grow faster and some will disappear,” said Karel Zeman, senior portfolio manager ESCF I&II, CBRE Global Investors.

It is by no means the end of the shopping centre: some will re-purpose, some will close down but many will remain very successful.

“Dominance is the key factor,” said Zeman. “It is not a question of size or location, a dominant shopping centre will be the winner even if it’s medium-sized, provided it’s in a good catchment area with little competition. I see a solid outlook for non-food retail.”

The negative mindset is already shifting as consumers’ preferences change and they return to in-person shopping after the online binge during lockdown. It will start from a low base but there will be strong growth as people go out again.

“The situation has already improved compared to a year ago,” said Zeman. “We have the same occupancy rates as before the crisis. Tenants are not questioning their presence in shopping centres. We have lost income of course, but everyone is still there with good products and ready to start again. That’s why I am optimistic over the medium term.”

Tenants see the crisis as a short-term problem that will be solved over time.

“We anticipate continued liquidity and commitment from retailers to maintain a presence in good quality locations,” said Tjard Martinus, director, European retail research & consulting, JLL. “The outcome will be a more resilient and more productive sector.”