Economic normalisation expected in 2023
2022 was an unusual year from every point of view. The economy has been severely hit with inflation at highest levels since decades, sky-high energy prices and rising interest rates to try to fight running consumer price index.
Economic conditions have suffered throughout the year 2022 in the aftermath of the conflict in Ukraine. While GDP held up well last year, a recession is looming. GDP growth is expected to stand around 0.2 and 0.6% in 2023 according to the National Bank of Belgium and the IMF. The Belgian economic outlook is thus mitigated for 2023 while a more important GDP growth is expected as from 2024. According to the International Monetary Fund, Belgian public deficit will remain important in 2023 while public debt could continue to deepen if any adjustments is taken by the authorities. Successive interest rates hikes also weigh on the public debt.
The unemployment rate declined these last years but is expected to increase as from 2023 and to reach 6 2% according to the latest forecasts released by Moody’s. Unemployment is expected to rise faster in Wallonia than in Flanders. It should remain relatively stable after 2023, around 6.5 to 6.7% up to 2026.
Inflation remains high, namely due to an increase in food and services inflation since the beginning of the year. This is fueling fears of inflation becoming entrenched while energy inflation is now strongly negative While the headline Belgian consumer price index should decline throughout 2023, high and rising underlying price pressures remain a big worry.
Consumers’ confidence remains stable since the beginning of the year, though still far below the level observed at the end of containment measure in 2021. Consumers are more pessimistic in the Belgian economic outlook for the next 12 months and fear an increase of the unemployment rate. However, consumers are more confident in their own sparing capacities. In this context, the rise of interest rates could indeed push consumers to spare rather than to spend and, as a consequence, lead to a slight decrease in retail sales.
BELGIUM / Retail Q1 2023
Q1 take-up declines for the first time since 2017
Q1 letting activity decreased for the first time since 2017 with 80,000 sq m recorded since the start of the year 2023. This figure is just below the 5-years average but represents a 27% drop compared to Q1 2022. Following two record years in the aftermath of COVID pandemic, we should assist to a normalisation trend in 2023 on the retail letting market.
Around 175 transactions were observed in Q1 2023. This is perfectly in line with the Q1 average over the last five years and represents only a 10% decrease compared to Q1 2022.
Retail sales on a sharp decrease since the start of 2023
As Belgian consumers are facing hard times with rapid inflation and great economic uncertainty, a persistent softness in retail sales is not surprising and will probably lead to lower take-up in the coming months and years.
The Belgian retail sector tracked indeed successive decline since the start of the year. The headline was down mostly because of a decline in e-commerce as well as lower sales of automotive fuel and non-food items.
Belgian households are certainly in a better position than some of their eurozone counterparts, thanks to the country’s wage indexation. Though this mechanism risks deepening the roots of inflation, and thereby puts the medium- and long-term purchasing power of Belgian households at risk, it is helping in the short-term to lessen the blow to real incomes. That said, households are still seeing disposable incomes squeezed by quickly rising interest rates.
Strong start to the year in the High Streets segment
In Q1 2023, close to 100 deals have been recorded in the different High Streets of the country for a total of 26,000 sq m of take-up. Transactions in this segment represents 55% of the activity, namely thanks to deals such as the 1,945 sq m letting of Only on the Veldstraat 56-58 or the 1,140 sq m letting of Rocycle on the Chaussée d’Ixelles 148. Out-of-Town retail amounts to 45,000 sq m (more than 50% of the take-up) spread on aroung 60 transactions. The most significant of the quarter are done by food retailers such as Albert Heijn on the Boomsesteenweg, Colruyt on the Merksplassestenweg and Jumbo on the Rijksweg.
After a strong 2022, activity in the Shopping Centres was subdued in Q1 with 20 transactions and a take-up around 9,000 sq m observed.
Take-up by quarter (000s sq m)
Gross turnover index in retail sales
(Base = 100 in 2015)
Food & Beverage and Clothing retailers heading the pack
In Q1 2023, Food & Beverage operators and Clothing retailers were the most expansive, representing more than 30% of the total number of deals together.
The different brands of the Bestseller group, namely Only and Jack & Jones, continue their expansion across the country. In the meantime, F&B operators continue to be the most active retailers’ typology with openings of new concepts every quarter. This trend confirms the shift in customers’ behaviour to spend on doing things and share moments.
Health & Beauty retailers are the third most active this quarter, following strong presence in 2022 as well. Opticians and pharmacies dominate this category, namely Medi-Market which is very active currently.
Conversely, after robust expansion during the COVID outbreak, Home, Deco and DIY retailers are rather on the optimisation or consolidation of their existing network
Footfall still below pre-COVID levels in the High Streets
According to the latest figures released by MyTraffic, footfall remain under pressure in the different market segments. Shopping Centres frequentation is around their pre-COVID level though observed a strong decline in February 2023. Index currently stands at 100.
In the High Streets segment, situation is still 30% to 40% lower than pre-COVID levels. On average, the index is around 60 since the beginning of the year. However, the situation is very different between High Streets and some of the tem are back to pre-COVID levels while others continue to suffer
Prime rental values remain stable in Q1 2023
Prime rental levels have been stable in Q1. As inflation is expected to remain high in 2023, rental levels for existing leases should increase by around 4.6% according to latest figures. As a consequence, retailers could decide to move and sign new leases at market levels.
Prime rents for the High Streets segment stand now at 1,600 EUR/sq m/year in the Meir (Antwerp) and at 1,550 EUR/sq m/year in Brussels. According to our forecasts prime rental levels should rise rise gradually to reach 1,700 EUR/sq m/year in 2026.
In the Shopping Centre segment, prime rents are at 1,200 EUR/sq m/year. Stability is also expected all along 2023.
Prime rents in Out-of-Town Retail stands at 170 EUR and are expected to stand around 180 EUR/sq m/year in 2025.
Most active retailers’ typology in Q1
