Promising future for retail parks

What are retail parks?

Large format retail has evolved differently in the Netherlands than it has in most other countries. The Dutch government’s policy for peripherical and large-scale retail locations resulted in strict regulations governing the use of these locations. Today, we can refer to these locations as retail parks, but historically there were greater differences between peripheral and large-scale retail locations, which we will now elaborate on. In the rest of this report, however, we will refer to them as retail parks.

The size of the shop’s products is the deciding factor for peripheral locations. The term initially encompassed DIY stores, garden centres and retailers of cars, boats, caravans, kitchens and furniture. As there is too little room for these large products in city centres, these sub-sectors were only permitted to locate their stores outside existing shopping areas, although they did remain within the built-up area. We usually use the term ‘large-scale retail locations’ to describe the location of large format stores in other sub-sectors. In practice, these are often stores that sell electronic goods, bicycles, car parts, pet-related products, toys and (outdoor) sports goods.

The retail park stock

The total stock of retail park real estate stands at over 7.8 million m²: more than 18% of the Netherlands’ total retail stock. Many of these clusters concern home furnishing malls. There are approximately 130 of these in the Netherlands, such as Villa ArenA in Amsterdam and Alexandrium in Rotterdam. All the home furnishing malls combined come to over 4.2 million m², or 54% of the total retail park floor space. Yet large-scale retail can also be found on industrial sites, such as De Schinkel and Amstel Business Park in Amsterdam. Well-known retail parks without a focus on home furnishing include The Wall near Utrecht, Retailpark Roermond and Maxis Muiden. Nowadays you will generally also find supermarkets at these locations too.

Finally, there are the Factory Outlet Centers (FOCs): special shopping centres where well-known brands sell their products at a significant discount. There are four of these FOCs in the Netherlands: Bataviastad (near Lelystad), Designer Outlet Centre Roermond, Rosada (near Roosendaal) and SugarCity (near Amsterdam).

Stable revenue growth

The size of the retail park stock has remained relatively stable since 2009. Yet revenues in the sub-sectors for home-related products were in fact extremely volatile during this period. It is noticeable that since 2009 indexed revenue growth in these sub-sectors has mostly been higher than the stock and revenue growth in the overall retail market. Revenues at retail parks are therefore growing faster than at most other retail locations, even after the credit crisis from 2007 to 2011.

Some of this revenue growth can be attributed to inflation and the growth in the number of residents and households in the Netherlands. This growth has led to more goods being sold. Yet since 2015, the growth in the number of households has been more or less the same as the growth in the retail park stock. Annual inflation averaged 1.5% between 2015 and 2021 and this therefore only explains a small portion of the upturn in revenues. We can therefore conclude that residents of the Netherlands have spent more per person in the sub-sector for home-related products.

As the stock of retail parks remained fairly stable, revenue per square metre climbed sharply. Between 2015 and 2019, this was up by 35% to €1,464 in the home furnishing sub sector, and for DIY stores by 23% to €1,782 . The 6% increase in revenue to €563 per square metre at garden centres was relatively small. Yet these are the revenue data from before the record year of 2020, when residents of the Netherlands turned en masse to DIY stores and garden centres. These shops were permitted to stay open after the outbreak of Covid-19 and the pandemic was the perfect opportunity to make your home more comfortable, especially as working from home became the norm for many people.

Data from Statistics Netherlands show that revenues were also high in these sub-sectors in 2021 and the first half of 2022. Although we have seen a minor decrease since the third quarter of 2022, revenue in these sub-sectors would need to drop by as much as 25% to 30% for it to revert to the same level as the growth in the stock of properties.

Rise of e-commerce

In addition to higher in-store revenue, online sales of products for in and around the home increased as well. The Netherlands ranks fifth in Europe when it comes to online shopping, with an average percentage of 22%. This is expected to grow to 30% in 2030. The percentage of online sales in home furnishing increased from 13% in 2016 to 24% in 2021 . The first half of 2022 saw a similar percentage. This sub-sector is therefore in line with the long-term expected average. The impact is still small for DIY (6%) and garden products (5%). Yet it seems reasonable to assume that most people would prefer to see and try out more expensive products, such as a new sofa, in person before buying. Showrooms will therefore still be necessary, although retailers would do well to have their omnichannel strategy in good order.

Another trend is also visible. Many webshops have opened physical stores in recent years - think of Coolblue, plattetv.nl (flatscreen TVs), laminaatenparket.nl (laminate and parquet flooring) and fietsenwinkel.nl (bicycles). Retail parks are excellently suited to these parties owing to their easy accessibility. You can nearly always park free of charge right outside the store and easily pick up large items. Yet this is not the only reason that these businesses are opening physical stores. The locations also serve as an opportunity for customers to browse and even test products. Asking for advice or exchanging goods is also much easier in person. In short, webshops see their physical stores as an important additional service. Finally, they can use these stores for deliveries too. The store (or part of it) can then operate as a small warehouse or distribution centre. The positioning of retail parks in the city or urban fringe means that these locations are an interesting option for deliveries from this type of dark store.

Vacancy rates and pricing

With revenues rising sharply and the stock of properties only growing relatively slowly, it will come as no surprise that vacancy rates are falling at retail parks. Since peaking in 2014, these have declined steadily to today’s rate of 4%. In the case of home furnishing malls the rate is as low as 2.1%.

Although vacancy rates have fallen, rents have remained more or less stable since 2009. The average rent at retail parks without a focus on home furnishing is between €80 and €150 per m² per year. Rents are much higher at top locations though. The bandwidth for retail parks with a focus on home furnishing - such as DIY stores, garden centres and so on - is about €60 to €120 per m² per year. In both cases, rents depend greatly on the location, size, nearby competition and condition of the property - as well as the catchment area. Stores on upper floors are generally less popular and as a result rents are lower.

Investment market for retail parks

Retail parks involve large stores or clusters, which means that transaction volumes are generally high. For this reason, over the years a volatile pattern has been visible on the investment market. Investment volumes exceeded €0.5 billion in 2017 and 2018. Two large portfolio transactions accounted for 52% of the total volume in 2017 and on top of this there was the major acquisition of Rosada Fashion Outlet. In 2018, the Intergamma portfolio made up about 30% of the total retail park investment market. Investment volumes stood at €200 million and €240 million respectively in 2019 and 2020. Yet in 2021 the figure was only €139 million. This was 8% of the total retail real estate investment volume of €1.7 billion. In the first three quarters of 2022, the investment volume was already as high as €136 million, almost the same as over 2021 as a whole.

It is noticeable that Dutch investors were the main buyers in the period 2010-2013. They accounted for 71% of the investment in retail parks. This all changed from 2014, however. In the period up to 2019, Dutch parties only made 19% of acquisitions and by then it was mostly the Dutch that were selling properties. They continued to do so after 2019, although the ratio of Dutch and foreign investors was more balanced after this year. The type of investor also changed during this period. Between 2012 and 2016 investors were primarily private equity parties, while later listed property companies accounted for the majority of investments. Private investors have also had an increasing presence on the market since 2020.

The net initial yields of the best properties have gradually climbed to 6.3% since 2020. This upturn has been occurring more rapidly since the fourth quarter of 2022 though, up to 6.65% at the moment. This is related to the interest rate hikes implemented by central banks in a bid to combat the high rate of inflation and these are having an impact on financing. Many investors are also waiting to see what happens: they want to know whether a recession is on its way and, if so, how deep it will be.

Outlook

Vacancy rates at retail parks are currently low: 4%. Yet even if these climb, these locations can still constitute an interesting alternative to the logistics market. Vacancy rates on that market are even lower at 2%, while opportunities for new developments are few and far between. Locations in urban areas can be given other uses as well, such as offices or homes. Good examples of this include Amstel Business Park and the new plan to transform MegaStores in The Hague. This project involves halving the retail floor space and building about 2,000 homes. This will not be possible everywhere of course: there needs to be local demand and the location must be suitable for this type of use. Research is a good starting point for this reason. A complete or partial change of use could be an interesting way of retaining the location’s value. The outlook for retail parks is therefore positive.