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European Retail Overview - May 2009

Retailing in a Recession
Consumer and Retail Confidence remain near all time lows but
have risen in recent months indicating a possible turning point in
sentiment.

Occupier demand changed little over the last quarter with


retailers continuing to focus on the best locations. At the same
time, the gap in demand between prime and secondary is
widening.

Investors continue with their ‘wait and see’ strategies, although


as the year progresses more transactions are expected as buyer
and seller expectations are increasingly aligned and the market
moves towards fair value.

.
2 On Point • European Retail Overview • May 2009

European Retail Overview


Consumer and Retailer Trade Confidence Europe Belgium and the UK in particular, saw a significant improvement,
with many retailers (particularly in the UK) benefiting from less
10 competition, due to the large number of administrations earlier in the
5
year. In contrast, retailers in Romania and Hungary, where
0

confidence had been relatively resilient, were notably less confident


Apr-06

Jun-06

Aug-06

Oct-06

Dec-06

Feb-07

Apr-07

Jun-07

Aug-07

Oct-07

Dec -07

Feb-08

Apr-08

J un-08

Aug-08

Oct -08

Dec-08

Feb-09

Apr-09
-5

-10
in the first four months of 2009, reflecting the sharp economic
-15

-20 downturn in parts of CEE in recent months. Retail trade confidence


-25
also fell sharply in Finland, and has been highly volatile in France,
-30

-35
Consumer Confidence falling sharply in April, indicative of the uncertain trading
Long Term Cons umer Confidence Average
environment that retailers face across Europe.
Retail Trade Confidence
Long Term Retail Trade Confidence Average
Retailer Performance
Source: European Commission The first quarter was tough for retailers. The Metro Group saw a
2.3% fall in turnover and Carrefour posted a 5.5% like-for-like
Consumer Confidence decline. H&M one of Europe’s strongest fashion retailers saw a
Consumer confidence across Europe remains very low, but after 5.5% decline in Q1 like-for-like sales, although April was much more
almost two years of decline, the index rose in April. This was most positive (8% growth). Value retailers, supermarkets, and internet
notable in the UK where a combination of much lower interest and retailers continue to do well.
mortgage rates, falling fuel prices and a reduction in VAT has left
those still employed and not overly concerned about losing their job Retail Sales
better off than at the same time last year. This is reflected in retail All markets saw a slow down towards the end of 2008 with the trend
sales figures which have held up relatively well, with a 0.7% expected to continue through most of 2009. Retail sales are forecast
increase in the 3 months to April compared to same period last year. to remain flat or fall, across Europe this year. The predicted worst
It also seems likely that some of the funds ‘saved’ by consumers by performers include the politically unstable Hungary and the heavily
not buying cars (sales down 24% in April year on year) and houses indebted markets of Spain and Ireland. Russia and Romania have
have been diverted to the high street. both seen major downward revisions, and Finland and Portugal are
forecast to see a significant drop in retail sales in 2009.
Unemployment in the UK rose by 559,000 between Jan-Mar 2008
and Jan-Mar 2009 and will continue to rise in 2009. This remains a In 2010, Global Insight is forecasting a modest recovery, with flat
major concern, as it does elsewhere in Europe, but it is also retail sales in most of Europe, but a stronger bounce back in CEE,
prescient to look at employment levels which have fallen much less particularly in Romania.
(295,000) over the same period - another reason why spending in
shops has remained more resilient than expected. Change in Retail Sales

%
Elsewhere in Europe, confidence levels also increased noticeably in 15 2008
2009 (forecast)
Spain and the Czech Republic, but fell in Germany, Hungary and 2010 (forecast)
10
Romania. While consumer sentiment appears to have turned the
corner, it is also true that confidence levels remain very low and are 5
likely to remain well below long term average levels for some time to
come. 0

-5
Retailer trade confidence
France
Belgium

UK
Germany

Hungary
Romania

Poland

Czech Rep

Russia
Ireland

Finland
Spain
Portugal
Netherlands

Italy
Sweden

Retail trade confidence in Europe stabilised in the first quarter, and -10
rose in both March and April, although there were differences by
country. Source: Global Insight
On Point • European Retail Overview • May 2009 3

Retailer Demand Occupier trends


Retailer demand for prime units (shopping centres, retail More retailers are putting expansion plans on hold, and those that
warehousing and unit shops) remained relatively stable in Q1 2009, are expanding are more selective about new projects, and are
though Russia and Portugal have seen a slight cooling in interest for demanding better terms. With rents falling in most markets and
prime shopping centres. In the Netherlands, occupier demand for occupier incentives increasing, financially sound retailers are taking
retail warehousing in prime locations fell, and in Hungary, Romania this opportunity to gain representation and market share, often in
and Sweden demand for prime unit shops declined. Occupier new markets.
demand for secondary locations is weak across Europe, with
Germany, Hungary, Romania and Sweden all seeing a further fall in In Poland, for example, Zara Home, Brooksfield, Parfois and Avanti
demand for unit shops in the first quarter. In Italy, retailer demand all took new space in the first quarter. And in Russia, H&M, River
for all sub sectors fell for both prime and secondary locations. Island, BEBE and IKKS, among others, opened their first stores.
H&M also expanded in Spain, as did Mango Men, Orange and
Retailers continue to focus on the best locations and thus the gap in Primark. And in Italy, and against the general trend, international
demand between prime and secondary is widening. homeware retailers (Jysk, Maison du Monde, Ikea and Casa) all
took new stores.
.
Media Markt is expanding in Turkey and in Europe’s other major
emerging market, Russia, Metro and Auchan continue to expand
into the regions, confirming their confidence in the long term
prospects of this market, which is currently experiencing a sharp
downturn.

Retailer Demand Q2 2009

Shopping Centres Retail Warehousing Unit shops


Parks
Prime Secondary Prime Secondary Prime Secondary
Belgium
Czech Republic
Finland
France
Germany
Hungary
Ireland
Italy Retailer
Demand
Netherlands Hot
Poland
Portugal
Romania
Russia Cold
Spain
Sweden
Turkey
UK
4 On Point • European Retail Overview • May 2009

Luxury retailers are finding trading tough as consumers trade down, Shopping Centre Development Trends
with Stella McCartney and Alexander McQueen pulling out of Following another record year of new opening in 2008, Q1 2009 was
Moscow, although German luxury brand van Graaf entered the quiet, with a low number of small and medium sized projects
market and in London Michael Kors opened its first stand alone completed. The exception was the opening in Russia of the 80,000
store on Bond Street. In addition Miu Miu and Prada are planning to sq m Metropolis shopping centre in Moscow and the 52,200 sq m
open stand alone stores in Turkey. Malta shopping & leisure centre in Poznań, Poland. A large pipeline
of new schemes is due to open across Europe in 2009, mostly in
At the other end of the brand price spectrum, occupier demand and Southern and Eastern Europe. The majority of schemes currently
turnover levels in some factory outlet centres are strong, a trend under construction and due in 2009 are likely to progress, although
noted in Turkey, Italy and The Netherlands in particular. a growing number of these, mostly in CEE, are being stopped mid
construction as finance is pulled. Where construction has not yet
Short-term outlook on rental growth started a high proportion of the pipeline is expected to be delayed,
Unit shop rents were stable in most markets in Q1, and are some indefinitely.
expected to remain so in the short term. However, there is
downward pressure in some markets, notably Moscow, where
retailers are unable to access finance to expand. Prime unit shop
rents (the most prime pitch in the majority of markets) are holding up
slightly better than shopping centres which in turn are holding up
better than retail warehousing. Only in Ireland, Romania, Russia and
Spain is the short term sentiment for rents pointing down across all
three retail sub-sectors. Rental prospects are only marginally better
in Italy, Portugal and UK with prime unit shops providing some rental
stability. In the shopping centre sector, prime rents are stable in
core continental Europe, the Nordics, Poland and Czech Republic.

This of course is not the whole picture, with expanding retailers


demanding shorter leases, increased rent free periods and capital
contributions. And in many markets retailers are re-negotiating rents
on existing leases by way of temporary rent discounts.

Short-term outlook on prime rental growth – Unit Shops

Country Unit shop Unit shop


Country
Rental Growth Rental Growth
Belgium Ö Poland Þ
Czech Rep. Ö Portugal Ö
Finland Ö Romania Þ
France Ö Russia Ø
Germany Ö Spain Þ
Hungary Ö Sweden Þ
Ireland Þ Turkey Ö
Italy Ö UK Ö
Netherlands Ö
On Point • European Retail Overview • May 2009 5

Investment trends Shopping centres were the prime target for investors but accounted
Direct retail real estate investment in Continental Europe totalled for just over one third of the total volume transacted, compared with
€980 million in the first quarter of 20091, 37% down on the previous 55% in 2008, reflecting the lack of prime product on the market and
quarter (€1.5bn). Western Europe accounted for the vast majority the difficulty in raising finance for funding larger transactions.
(89%) of transaction volumes as European investors are Nevertheless, shopping centres with strong defensive qualities in
increasingly focusing on their home markets. The proportion of retail terms of location, scale, tenant covenant and quality remain a key
investment volume accounted for by domestic investors has target for investors in 2009. Factory outlet centres, accounting for
increased from one third in 2008 to over half in Q1 2009. 26% of transaction volumes, were also a target in Q1, as Henderson
and Neinver consolidated their outlet portfolios.
Investors continue with their ‘wait and see’ strategies in Continental
Europe, with most markets seeing some fall in prices in the first In comparison, transaction volumes in the UK totalled €1.3 billion in
quarter. At the same time, the high cost and lack of access to the first quarter – up 54% on Q4 2008, although the sale of a 50%
finance continues to restrict market liquidity, particularly for larger stake in the Meadowhall shopping centre accounted for almost half
transactions. There is demand for prime product in the best (48%) of this volume. Investor interest in the UK market is
locations and low vacancy rates in many top schemes provide the increasing following a sharp outward movement in yields, but this re-
secure long-term income that investors seek. pricing does reflect on-going concern about rising vacancy rates
even in prime locations.
Italy and Germany were the most active markets in Continental
Europe, accounting for 31% and 28% respectively of total We expect that as the year progresses and buyer and seller
transaction volumes. In Italy two deals over €100 million were expectations are increasingly aligned and the market moves
completed: the Barberino Designer Outlet centre and the Centro towards fair value that transactions will be forthcoming. Two major
Rondo shopping centre in Monza, while Germany was the most drivers to this will be the realisation of valuation markdowns and a
active market in terms of the number deals – nine completed in Q1. restricted return of liquidity from the banking sector.
Investment into Central and Eastern Europe was quiet, due in part
to the lack of domestic investors in these markets.

Retail Investment volumes Q1 20091

UK €1.3bn

Italy

Germany

Netherlands

Russia

Finland

Greece

Sweden

Belgium

Austria Total volume in € million

0 100 200 300 400 500 600

1
The above review considers all retail investment deals over €5 million in value, of shopping centres, retail warehouses, factory outlet centres and
supermarkets in Continental Europe and the UK.
Jones Lang LaSalle Contacts

Jeremy Eddy
International Director
European Retail Capital Markets
London
+44 (0)20 7399 5779
Jeremy.Eddy@eu.jll.com

James Dolphin
National Director
European Retail Agency
London
+44 (0) 207 852 4623
James.Dolphin@eu.jll.com

Neville Moss
National Director
EMEA Retail Research
London
+44 (0)20 3147 1187
Neville.Moss@eu.jll.com

European Retail Overview – May 2009

OnPoint reports from Jones Lang LaSalle include quarterly and annual highlights of real estate activity, performance and specialised
surveys and forecasts that uncover emerging trends.

www.joneslanglasalle.com

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