High street retail markets across Europe are benefitting from the solid recovery of tourism, both international and domestic. Retail was the second most traded sector in the year to September 2023 with an investment volume of approximately €22.0 billion, equivalent to a 19% market share.
Travel across Europe had been steadily picking up since the dip experienced in 2009 following the Global Financial Crisis, although incomparable to the 65% fall seen in 2020 as governments around the world locked down their economies. This is good news for the retail sector as tourism is an important indicator of the health of our international high streets.
Consumers accelerated their online spend during the COVID-19 pandemic, as the opportunity to visit physical stores was withdrawn, but as economies reopened consumers voted with their feet, returning to physical stores, prompting a gradual but steady decline in online retail spending in most European countries.
Navigating the retail landscape is not without its challenges for occupiers. High street activity saw a revival as markets emerged from an almost standstill during the pandemic as consumers were allowed back onto high streets and into physical stores.
But inflation has eroded households’ purchasing power and squeezed retailer margins. Having said that, those retailers that are well capitalised have been able to look beyond the current market conditions and are best placed to execute on strategic plans, even if they have been scaled back. Although, with margins squeezed as rapid inflation rises took their toll, and despite recent falls, retailers are conscious of where and how to deploy capital. There will be increased focus on store performance with retailers trying to maximise the value of their real estate assets.
Key takeaways for European retail:
- Retailers continue to consolidate, focusing on fewer, but bigger and strategically located, flagship stores.
- Income streams for quality assets are stable, or stabilising, as prime rents have rebased substantially.
- An omni-channel approach is crucial for retailers with online now seen as less of a threat as footfall to physical stores rises in parallel with a slowdown in online spend.
- The Eurozone economic recovery has been delayed to the latter half of 2024 as monetary tightening filters down through the economy.
- Inflation is past its peak and is trending down but the situation for households remains challenging. There are however signs of improvement.
“High streets have repriced enough in the first nine months of 2023 to offer select opportunities. This repricing combined with the potential easing of financing conditions should see attractive investment opportunities come to the market in 2024. Thus, softer pricing combined with the macro trends supporting rental growth will make the timing right for both new investments and new leasing deals.”
