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European Retail – 10 Key Drivers For 2011
17 Nov, 2010, London
“Today’s stabilisation will give way to a supply-led recovery in 2011, but with further divergence between prime and secondary locations, as retailers compete more strongly for the best space.”
Vacancy rates and supply – particularly shopping centre development - will be the most important drivers of retail property markets and performance in 2011, according to a new report `European Retail - 10 Key Drivers for 2011' by global consultant Cushman & Wakefield. The report, which was launched today at MAPIC in Cannes, examines the top ten factors set to impact, both negatively and positively, on the outlook for retail trading and retail property in Europe next year.
Divergence or polarisation is in fact the second key theme highlighted in the report and, faced with a patchy global economic recovery, there will be major differences in performance between retail markets, with growth accelerating in some whilst others will continue to see more sluggish trading conditions.
Even in locations where a stronger consumer market does emerge, property supply will still be a key factor influencing growth and investor and retailer intentions. Shopping centre completions are expected to remain at low levels for at least one to two years, which will support rents for the better schemes, as retailers see their options diminished and are forced to consider existing stock.
In general, retailer demand will remain cautious and selective, but with less development and fewer new options there will be even stronger competition for the best space. For this reason, the prime market will be the main home of the recovery once it does kick in. Generally, the secondary market, whether defined by size or quality, will remain weak in 2011 and is expected to take significantly longer to recover.
John Strachan, Head of Global Retail at Cushman & Wakefield, said, “The right mix of lending conditions, consumer and business confidence is vital to create the overall environment in which recovery can take hold. 2011 will be shaped in the main by a reduction in the availability of good quality space and it will be interesting to see how quickly retailers and developers react to this.”
Darren Yates, Associate in Cushman & Wakefield’s European Research Group, said, “Whilst consumers will remain under pressure in 2011, retailer demand in general is expected to pick up after two years of relative inactivity. However, with input costs rising, retailers will be very margin-conscious and keener than ever to focus their efforts on securing space in the best possible locations. With a steadily declining number of choices available to them, competition for this space will become even more intense, whilst secondary space will continue to languish in the doldrums. ”
EUROPEAN RETAIL - 10 KEY DRIVERS FOR 2011: A SUMMARY
1. Supply: Supply shortages of prime space, which are already beginning to emerge, will be the key driver shaping the property market in 2011.
2. GDP: Whilst the key drivers of economic recovery are trade and investment orientated, the avoidance of a double dip will be the second most important driver for retailing in 2011. However, the polarisation of Europe is possibly set to possibly increase and will be a key theme for retailers and investors to watch.
3. Affordability: Occupancy costs are more affordable following the rental falls of 2008/9, but cost pressures are emerging in other areas of the retail chain, e.g. raw materials and transport, and this may hinder retailers.
4. Employment: The resilience of labour markets will remain fundamental to the outlook for retail in 2011. Unemployment rates have stabilised in most countries, but next year may yet see more job losses if the cuts in public sector jobs outweigh the ability of the private sector to pick up the slack.
5. The Lending Market: With interest rates expected to stay lower for longer, this should help businesses and consumers in 2011 – helping to ease some of the pain from government spending cuts. However, the most significant trend expected in 2011 is for a steadily increased appetite to lend by banks and to borrow by businesses and, possibly, consumers.
6. Retail Sales: Uneven recovery to continue as with GDP, with sales of large ticket items expected to pick up more slowly. Value retailers will do well as consumers continue to feel squeezed by higher taxes, lower wages and uncertain employment prospects in some cases.
7. Austerity Measures: Will hold back growth and could delay recovery in some areas. The need to act is however much less in some markets e.g. the Nordics and has been factored in to forecasts by businesses, economists and many consumers. Nevertheless, areas where tax increases are dominant rather than spending cuts may experience the greatest impact in 2011.
8. Regulation: Perhaps the “elephant in the room”. Regulatory changes will have an increasing impact in 2011, particularly as retailers try to adjust to the lease accounting changes scheduled for 2012 or 2013.
9. Demand: Retailer demand will remain cautious and selective, but with less development and fewer new options, there will be stronger competition for the best space.
10. Demographics: Population change is set to be a critical driver of European retail and, with experts predicting a peaking in Europe’s working population in 2011, change will come sooner than some expect. However, the immediate impact on retailing will still be more subtle and more to do with future business planning than short term trading patterns.