KEY OBSERVATIONS
8 April
For our latest retail observations from markets across EMEA please click through to our latest findings.
Market Context
Omni-Channel Capacity
Retail Market Impact
Rental Outlook
- Retail spending on goods accounts for around one third of household disposable income, with a further third spent on more discretionary services and experiences. The remaining third goes towards housing /occupancy costs and savings. This should allow some ‘belt-tightening’, and maintain at least needs-based retailing.
- Retail spending ‘seasonality’ illustrates that the period most likely to be impacted by quarantine measures will be Q2. Fortunately for retailers this is not peak season, which typically follows in H2, and especially Q4. Provided COVID-19 and the economic/market impact can be contained, spending could recover strongly at the end of 2020.
- The ability of markets to support spending and retailers providing omni-channel goods, and e-services is going to be an important factor in supporting economies, not just retailers. As the chart below highlights, there are stark differences in the current levels of omni-channel adoption and supporting infrastructure. Markets in the upper right quadrant are those best positioned to cope, compared to those in the bottom left quadrant which are more dependent on physical retailing and eating out.
- High-street and enclosed shopping centres are the most exposed to a downturn in discretionary consumer spending. Retail, as we all know, has been suffering structurally with an over-supply of high street space in particular. Government measures in some markets to alleviate the payment of business rates will support some businesses short-term.
- For enclosed shopping centres, that have shifted their model towards experience retailing and food and beverage will also feel the negative impact of government social distancing policies. Shopping centres that have a grocery anchor and community facility anchor should prove to be more resilient.
- Grocery stores and the more convenient, cost-conscious car-based retail park model should also prove to be more defensive, particularly those offering click and collect services. Longer-term on-line retailing to increase as more traditional retailing countries/markets recognise the need to adopt cultural behavioural norms.
- The retail rental outlook for many European cities at the start of 2020 was already looking weak, although the bulk of markets were expecting stable rental conditions.
- The severe shock to the market brought about by Covid-19 will see rents come under downward pressure across the board in 2020, even those locations that were factoring in rental growth across retails asset types at the beginning of the year.
- Tourism focused high-street markets that are already under oversupply/structural weaknesses are likely to witness the biggest negative movement in rental rates.
- In some locations, such as Italy, contractual agreements may be undermined by ‘force majeure’ defaults and whether tenants can/will attempt to claim this. Retail tenants are already starting to postpone rental payments across numerous countries, and with government enforced shut downs the question will be whether the government will be able to compensate tenants/landlords beyond some business rate cuts.
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DISCLAIMER
The analysis and finding reported on this microsite is based primarily on Colliers International data, which may be helpful in anticipating trends in the property sector. However, no warranty is given as to the accuracy of, and no liability for negligence is accepted in relation to, the forecasts, figures or conclusions contained in this report and they must not be relied on for investment or any other purposes. The outbreak of the Novel Coronavirus (COVID-19), declared by the World Health Organisation as a “Global Pandemic” on the 11th March 2020, has impacted market activity in many sectors, creating an unprecedented set of circumstances on which to base a judgement. This report does not constitute and must not be treated as investment or valuation advice or an offer to buy or sell property. Given the unknown future impact that COVID-19 might have on real estate market supply, demand and pricing variables, we recommend that you recognise that our research and analysis is far more prone to market uncertainty, despite our endeavours to maintain our robust and objective reporting.
