- High street retail is the only commercial property sector to have fully recovered from the recession
- Growth widens from the European core to its periphery and from prime to secondary
- CEE, Germany, Portugal, Spain and Sweden tipped as hot spots for investment in 2016
Europe’s most luxurious high streets recorded another year of robust rental growth in 2015, according to research out today from Cushman & Wakefield.
Rents on Via Montenapoleone in Milan expanded by 41.2% in a single year, making it the fastest growing high street rental market in Europe in Q4 2015, ahead of Rome’s Via Condotti (37.5% growth) and Barcelona’s Diagonal (33.3%).
Elsewhere, smaller but sharp increases have been seen in Paris, London, Dublin, Venice, Lisbon and Madrid. As a result of this extraordinary growth, high street retail is now the only commercial real estate sector in Europe where rents on a weighted average basis are above their previous peaks and yields are below pre-recession levels.
Retailers’ focus on key city locations is a response to the growing significance of urban living, driven by changes in lifestyles and demographics as well as city tourism.
Monika Sujkowska, Senior Analyst in Cushman & Wakefield’s Investment Strategy team, said: “The result of this re-urbanisation trend is more densification but also a strive for smarter, more creative urban designs and more effective transportation, allowing for healthier, less stressful environments as well as better accessibility and proximity at an affordable cost. From the retail perspective, mixed-use, centrally located schemes and high street shops in close proximity to culture, business, education, restaurant and tourism hubs appear to be ideal solutions to these challenges as they allow residents to not just shop but also work and socialise – all in the same place - while granting retailers the benefits of high natural footfall.
“It’s not just a matter of footfall and turnover, however. In a multi-channel world, the impact of physical property and its location on brand has become more important, with the right property moving up the retailers’ value chain. By extension, the brand of the retail submarket and the city is of greater significance and greater potential value. This explains the trend towards large statement outlets in city centres but also a parallel trend towards establishing presence in emerging shopping districts and the best streets in second-tier cities, in an attempt to spread and strengthen brand awareness.” added Sujkowska.
Michael Rodda, Head of European Retail Investment at Cushman & Wakefield, said: “Growth in demand for centrally located retail space has been extraordinary but has not been geographically even. As retailers seek new expansion opportunities, this growth will spread further from established shopping destinations such as the key luxury high streets in Paris, London, Rome, Milan, Barcelona and Madrid to second-tier cities and smaller countries in 2016. Retailers are likely to target the streets that are best placed to reap the benefits of increasing economic power and wealth growth in their local markets.”
Anthony Selman, Partner, CE Capital Markets at Cushman & Wakefield, said: “Across Europe investors are competing to invest into the fabric of the city. The vibrant heart of cities where people shop, work, eat and live. CEE and specifically Poland's major cities offer a great opportunity for International capital looking to invest into city centre real estate backed by urban life.”
Cushman & Wakefield’s report highlights hot spots for high street retail investment and details trends at play in each market.
Central and Eastern Europe is tipped as one of the main areas of growing demand from retailers going forward on the back of ongoing urban renaissance, led by major Polish cities and Prague. Following two decades of shopping centre dominance, a transformation of the city centre is underway, driven by growing and increasingly wealthy middle classes who seek a more exciting way to shop. Urban planners and developers have already woken up to the potential of this trend as they incorporated attractive retail and restaurant space into modern blocks as well as revitalised historic tenement houses, old market halls and factories – a development particularly evident in Poland. High quality, mixed-use schemes appear to be particularly suitable for unlocking the region’s high street potential given fragmented ownership structures of traditional high street shops.
Southern Europe features as an investment destination as well, with the recent boom in prime high streets in core cities in Spain and Portugal expected to spread to select streets off the main thoroughfares as well as regional cities. Indeed, robust rental growth has already been recorded in Palma de Mallorca (18% in the last 18 months) and Puerto Banus in Spain and in smaller Portuguese cities with low international brand penetration. The success of Madrid’s Calle Orense is an example of a revival in secondary high streets. In Portugal, recent relaxation of planning laws, tax incentives for building renovation and new, less tenant-friendly lease laws are bound to accelerate improvements in retail stock on the most attractive streets in historical city centres.
In Germany, high street rental growth has been uneven despite healthy fundamentals in the consumer sector, with retailers focusing on the very best thoroughfares in major cities to ensure high turnover and protect themselves from the impact of the ongoing rise of etailing. While prime high streets in major cities are anticipated to strengthen further, there is also a parallel trend of urban revival in tier-2 and tier-3 cities.
There is high potential for growth in high street retail rents in Sweden’s major cities as well, on the back of changing shopping habits, tight supply and modest rental growth over the last few years combined with a number of mixed-use regeneration projects in the pipeline in the city centres of Stockholm, Gothenburg and Malmö. The store mix in prime locations has improved markedly already, with a number of international brands opening their first Swedish or even first Nordic stores recently. This trend is anticipated to continue given ongoing additions of retail, restaurant, residential and hotel space in a number of previously office-dominated areas of Stockholm.