The European retail market is undergoing massive changes as e-commerce grows and consumer habits change. Here are our 10 key takeaways from the annual RICS European Retail conference that was organised in Amsterdam this week.
1. Investors look for core products
Retail investment volumes in Europe have been declining for three years in a row but last year’s figure was still above the long-term average. In the past years, investors have been opening up towards opportunistic investments, but the latest figures suggest that they are coming back to core products. Shopping centres need to reinvent themselves in order to stay relevant to investors.
2. Investors are investing in cities, not countries
Top cities are outperforming countries in terms of growth and the gap between the most attractive European retinal destinations and the rest is widening. Pan-European investors still feel the need to invest in assets in secondary cities in order to keep up the performance – at least until they sell them, but on the long run, they are increasingly only willing to invest in the cities with the most attractive retail figures.
3. High streets are not dead but they are changing
Landlords are often unwilling to accept this and open up towards a new generation of retailers that better respond to changing customer needs. In large European cities, such as Paris, large retailers such as fast fashion brands are closing high street stores because the rents are too high. Landlords are unwilling to decrease rents and experts agree that it will take some time to convince them to let in smaller or newer brands for lower rents. Furthermore, the fragmented ownership and the lack of a common strategy often limit the growth of high streets. A possible solution can be having a street manager that can create the best possible results for a high street.
4. Europe’s retail market is becoming polarized
There is a clearly visible polarization in European retail towards luxury and budget, mid-range is not doing well. Should we have a recession, the market is going to become even more polarized and discount stores will thrive.
5. Millennials write the rules
Consumers, especially millennials, are becoming more conscious and retailers need to respond to this. Millennials feel the need to enjoy instead of the need to buy and are more willing to pay for experiences. Population growth and urbanisation also support these trends. As people are moving closer to each other, the need for more social space is growing.
6. Shopping centres need to become social destinations
Shopping centre owners and developers are feeling the pressure to design appealing social destinations. Reinventing the offer with digital native and sustainable brands, cooperating with co-working operators, organizing community events can attract more people to shopping centres, but the “easiest” way to increase footfall seems to be having a great F&B selection.
7. Food & beverage is the fastest growing retail segment
Shopping centres are pushing up the GLA dedicated to food & beverage. In 1995-2000 only 3-5% of shopping centre GLA was dedicated to F&B on average. This has grown to 15-16% by today and is expected to be above 20% by 2025. Food courts are now being moved to the centre of shopping centres instead of being hidden on the top floor. Statistics show that shopping centres with a good F&B offer have seen an increase in footfall even at times when others have not. A quality F&B offer can be a deciding factor for visitors and data shows that those who eat at shopping centres usually spend more in the stores as well. It’s critical for food chains to react fast to changing demand and some of the largest fast food chains have successfully done so by changing the experience they offer. Fast-casual is the fastest growing foodservice sector in Europe. In terms of format, food halls are becoming increasingly widespread in Europe with 400,000 sqm of new projects in the pipeline.
8. Convenience is more important than ever
People don't accept waiting anymore which means that payment options at cash desks and at the parking garage need to be updated and the payment process must be made faster to completely avoid the formation of queues. As convenience is becoming a must, food delivery is also booming. This segment should see further innovation in the future with the introduction of drone delivery and robot delivery.
9. Logistics and residential are good alternatives
Underperforming retail assets can have a number of alternative uses in the future. It is likely that even operating retail outlets will also have a logistics function in the future. Closed outlets could be transformed into last mile logistics centres but so far it seems that landlords are not willing to take the rent cuts. Converting into residential is a good option for district retail centres as there is demand for housing in urban centres, it creates high value and the new residents will mean demand for the remaining stores.
10. All these changes are hard to quantify
It is not yet easy to measure the effect of all these changes in the property valuation process. Experts are, however, hopeful that eventually short term rental and the ability to generate online revenue through the physical presence will also be included in the valuation. With the emergence of automated valuation, the role of valuers might evolve into an advisor. In the future, the production of the numbers will become partially or fully automated, the valuer will create value by analysing the data for the client.
