Cushman & Wakefield expects to see international expansion move yet further up the agenda for the leading brands in 2012 but points out that retailers are still exercising caution and are actively evaluating their existing store portfolios to lessen costs and maximise margins where they can, with many restricting their focus to major global cities in the prime high street and shopping centre locations. However, whilst activity has in the main this year, been focused on core assets and locations, the less risk-averse retailers as well as some investors are starting to broaden their horizons in terms of target markets with many retailers in particular ready to again embrace emerging markets as well as looking at smaller towns in established markets. In all cases however, the focus for most is prime locations and well-configured property.
A focus on modern space ties in with retailers’ need for efficiency, sustainability and for the integration of technology. However Cushman & Wakefield’s `What’s in store for European retail 2012 ?’ report highlights the increasingly tight supply of prime space, with availability not helped by a trend for some retailers to buy their own freeholds. Market access will not be made any easier by the limited development pipeline and the report suggests this will be a major challenge to retailers’ expansion strategies. Furthermore, the currently projected delivery total of 6.8 million sq.m for 2011 (46% accounted for by Russia and Turkey) is likely to fall short due to various schemes reporting delays.
Retailers rush to embrace multi-channel offering
The race is on for retailers to adapt their stores, their methods of operation and strategies to enhance the customer experience and to develop their multi-channel offer, with m-commerce as well as e-commerce likely to be a key battleground ahead. No one strategy can be assumed to work in all markets but a need for efficient, wired and well-located visible property will be a key theme in all top cities according to Cushman & Wakefield.Retailers however face falling supply levels for the best space and with development limited, rents have been bid up by the competition. In more secondary areas however the reverse is still true – availability is high and often still rising and rents and incentives remain under pressure.
Mark Burlton, head of EMEA retail tenant rep at Cushman & Wakefield explained; “With local markets getting tougher and in some cases stagnating, an increasing number of brands are diversifying into new untapped markets which provide much needed and exciting potential for revenue growth. At the same time, shopping centre owners and landlords are seeking new and often foreign brands with innovative store designs and an enhanced customer experience which is helping to drive cross border expansion and innovation. The basic message we have for success in the market in 2012 is to keep it fresh – the market is crying out for new ideas and concepts – but stay focused on prime – retailers still need access, proximity and visibility.”
Retail economy: polarized but slow into 2012
According to David Hutchings, head of European Research at Cushman & Wakefield, “Lower inflation and interest rates will boost spending power in 2012 and at some point, the sovereign debt crisis is likely to stabilize. No one knows when that will be however and hence with ongoing uncertainty, unemployment and higher taxes will keep consumers subdued. As a result, rents will continue to be dictated more by supply than demand. “We are predicting that growth in 2012 may be less than in 2011 - and negative in many mid-market locations – and will reflect the dichotomy in retailing itself, with high streets outperforming shopping centres due to demand from luxury as well as mass-market traders seeking high profile, accessible units but also with retail warehousing perhaps doing better as convenience and cost effective formats see greater demand. Designer outlets are also expected to continue to perform well, with turnover in the past few years for well-managed centres substantiating the belief that the concept is more resilient in recession than other areas of retail”.
Cushman & Wakefield expects the best value and luxury retailers to continue to perform strongly. Frugal spending and a focus on value by consumers has benefitted value retailers and discounters such as Lidl, Aldi, Primark and H&M whom are expanding their portfolios, while the very wealthy are more insulated from economic headwinds and more particularly, consumers in general still aspire to the best when they can, ensuring that many luxury retailers continue to prosper.
Investor demand for retail to remain strong across the region
Retail investment markets had a busy third quarter with €9.1bn traded, 7.7% up on Q2. Activity over the first 9 months of the year totalled €29.7bn, 9.8% higher than the same period of 2010, a market share of 34.3% versus 33% in 2010. However, a shortage of finance for large lots such as shopping centres has held the sector back and after slipping behind retail in the opening quarter, offices have regained top spot, with a 42% market share. Mike Rodda, head of cross border retail investment at Cushman & Wakefield said: “Buyers from all parts of the risk spectrum are focussing on retail – seeing potential from structural change as well as eventual economic upturn but also good defensive merits in the best locations and well-configured assets. In fact a pan-European market is now opening up for the top tier of centres, with growing demand for landmark properties.”
With more supply, at least selectively, an improvement in investment is forecast, with volumes up 7.5% this year to €41.7bn and 10-15% in 2012, to around €47bn. Performance trends will however remain diverse with the market polarised as a function of risk - real and perceived – as well as income strength and the growth outlook. There may be modest yield compression for the best assets, given the balance of supply and demand and likely level of interest rates, but elsewhere, “mid-market” towns and schemes may suffer, whether they are prime or secondary.
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