Retail Rents Stable throughout Europe as Occupiers Compete for Prime Space in Major Cities

In spite of a challenging economic environment and subdued retail sales, rents across Europe remain stable as retailers compete for limited space in the most sought after areas of major cities, according to the latest research from CBRE.

Despite this, consumer sentiment in Europe continued to weaken in the final quarter of 2011 (Q4 2011) and is now well below the long-term average level. Concerns about the ongoing eurozone crisis, with the potential for further job losses and reductions in disposable income has had a major impact on consumer confidence throughout Europe, but mostly in the eurozone countries. The overall growth in CBRE’s European Prime High Street Rent Index was just 0.5% in Q4 2011, in spite of strong performances from Berlin, Manchester and most notably Lille.  Over the full year, rents have risen 3.4% across Europe, indicating a slowdown in rental growth in the second half of the year. Prime rents are stable in most locations, with only a few high street locations experiencing significant growth.

Occupier demand is still heavily focused on the prime areas of major cities, although retailers are increasingly competing for suitable space. However, tenants have continued to push for more favourable lease terms and negotiate incentives including significant fit-out contributions, which in some cases are increasing the time it takes to complete lease agreements. Consumer confidence across Europe had been hovering around the long-term average for the first half of 2011, but subsequently fell with the trajectory continuing to move downwards. Sentiment levels in the Netherlands and Denmark weakened significantly over the last quarter, but fell most dramatically in Italy in the second half of the year. Retailer confidence has followed a similar pattern throughout Europe; however, in the UK, retailers’ confidence fell in early 2011, but improved towards the end of the year.

Given weakening consumer sentiment, it was not surprising that retail sales growth stalled over the important Christmas period. Across Europe (EU27), retail sales were flat in December, growing by 0.1% compared with the same period in 2010. In the eurozone area, retail sales actually fell by 1.6% reflecting the added pressure on consumers in these markets, particularly in Southern Europe.  In contrast, sales grew strongly in Poland and Russia. Neville Moss, Head of EMEA Retail Research, CBRE, commented: “Although retail rental levels have been largely stable, the competition over space in prime locations indicates that retailers are particularly confident about the long-term prospects of European city centre locations. Although trading conditions remain challenging as consumers reign back on their spending, many retailers continue to expand their store networks and some grew aggressively in 2011, including the Inditex brands (including Zara, Pull & Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara)and H&M. At the same time, a number of new American brands including Forever 21, Abercrombie and Fitch and Banana Republic made further in-roads into Europe.”

Gábor Borbély, Head of Research & Consulting at CBRE Hungary added: „Certain shopping centers in Budapest compete with the rents of Váci street, but in most malls rents are far behind this level. On average, rents remained stable in 2011 – although a couple of shopping centers in the Capital saw rents rising, in regional markets reduction was still characteristic. After four years the decrease of retail sales stopped last year, which may be an encouraging sign for both owners and tenants.”