Retail

As is the case in other sectors, rising interest rates had a tremendous impact on the retail real estate market in 2023. At €990 million, the volume was 51% lower than in the previous year. Despite this, interest in retail real estate is growing. This is partly because the prices have bottomed out, but also because of uncertainty in other sectors. As a result, financing premiums for retail have only risen slightly. We expect investment transactions to pick up again in 2024, especially in the second half, and particularly in high street locations and retail real estate in the supermarket segment. An investment volume of €1.2 billion is achievable, although this depends on the ECB interest rate policy and market players’ expectations.

Trends and developments

• Retail chains are continuing to centralise their locations. This means fewer small stores, but instead a few flagship or brand shops. Major sports brands, personal care, experiential and luxury brands, in particular, are still doing well, and are taking premium brands in their wake. However, we do expect retailers to become more cautious about expansion.
• The prime 20 shopping cities are becoming more attractive. Investors will mainly be focusing on the inner cities of numbers 6 to 15. Attractive returns are achievable in these stable markets. While there are vacant properties, generally speaking they tend to be relet quickly. Nationwide, the vacancy rate has risen slightly, but at 6.2% it is still relatively low. Retailers are struggling with rising rents, staff expenses and staff shortages, with the hospitality sector being hit the hardest.
• For retailers who have sufficient resources, this is a good time to buy real estate. The price seems to have bottomed out, which is making investment a good option. It is also a chance to take position in shopping streets. Moreover, it gives retailers the opportunity to create stability in their operations by reducing their exposure to rent fluctuations. Because of this, we are expecting a minor revival of the owner-occupier.
• Within the various types of retail real estate, in particular the yield on convenience real estate has increased. However, the demand for prime supermarkets and neighbourhood shopping centres offering a large proportion of daily supply is still high amongst investors who can afford to buy real estate without financing. However, the product does have to be sound in every respect. This will widen the gaps in value between core, core+ and value-add categories.

Analysis of retail outlets

On average, vacant retail units in neighbourhood shopping centres and the prime 15 inner cities are leased faster than in other retails areas. This is evident from bankruptcies figures of 30 well-known chains in the past five years. On average, the duration of the vacancy was almost 1.5 year. This includes retail outlets that relaunched operations. There is a big difference between the prime shopping cities and the less popular inner cities. For numbers 6 to 15, the average duration of vacancy is only slightly longer than the top five; vacancy in smaller city centres is more persistent. Forty-five per cent of all retail outlets did not relaunch operations, nor were they taken over, and this has led to vacancies lasting longer on average, namely 2.8 years. In this respect, too, the duration of vacancies in the 15 prime inner cities is significantly lower than the other inner cities.