Q3 2022 | Retail Marketbeat | Belgium

Retail Q3 2022

Odds of recession raise across Europe and Belgium.

The Russian invasion of Ukraine and its repercussions continue to significantly deteriorate economic conditions. Due to its reliance on energy imports, Europe is severely affected, and Belgium is no exception. While GDP held up well in the first part of the year, continued high inflation is expected to cause GDP to stagnate in the final quarter of the year and the beginning of 2023 The most recent figures indicate annual GDP growth is expected to be 2 44% in 2022, decelerating to only 1.03% in 2023. A slight recovery is currently expected as from 2024.

The Consumer confidence index recorded an impressive decrease in September and is at a historically low level as consumers are increasingly concerned about their own financial situation and ssaving capabilities.

Despite the economic downturn, employment growth remained strong in the first half of 2022, creating an additional 100,000 jobs for the year. However, the increase in 2023 should be limited to 39,000 jobs. Year to date, the number of bankruptcies in the retail sector remains relatively limited at 1,270. Fears on bankruptcy, mainly linked to high energy prices, are rising with regards to the coming months.

Inflation is increasing month after month and reached 11.2% in September, its highest level since 1976. As a result, inflation for 2022 is expected at 9.3%. This level will decelerate in 2023 to 6.40% before broadly closing in on the ECB’s 2% target from 2024.

Retail Q3 2022 BELGIUM

Letting activity on highest level ever.

Despite growing uncertainties and the decreasing consumer confidence index, letting activity is still at high levels in Q3 with close to 130,000 sq m of take up recorded. This brings the total of the year to around 361,000 sq m, the highest ever observed across a similar period, with one quarter left to go. In number of deals, activity holds on as well with around 220 transactions (more than 620 since January), a level perfectly in line with recent quarters.

Concerns emerge however, mainly linked to high energy prices and winter approaching. Local retailers especially raise potential issues on future energy invoices. This, combined with increasingly under pressure purchasing power, could weigh on the retail sales by the end of the year. We will probably not witness the usual uptick on Christmas and year-end sales, which could lead to a decrease of take-up activity in 2023. As such, the current growth observed on the retail letting market could not last forever and will come to a threshold in the coming months.

High levels of activity observed in every market segment.

This high level of letting activity benefits every market segment. Activity is even at record level in the High Streets segment with close to 90,000 sq m observed year to date. Brands like Solow, Abercrombie & Fitch, JD Sports and Pink Gellac contribute, amongst others, to this high level. Worth mentioning that clothes’ brands are among the most active in 2022, after a slowdown observed as a consequence of rising online retail and the COVID 19 outbreak. Next to clothes, Food & Beverage operators remain amongst the most active.

In the Shopping Centres segment, activity is also intense with close to 40,000 sq m recorded since the beginning of the year. Peek & Cloppenburg, which opened its doors in Westland Shopping Centre mid October, is still the biggest transaction of the year. In Q3, the 1,400 sq m letting by Sissy Boy or the 875 sq m letting by Nike in Wijnegem Shop Eat Enjoy or the 1,060 sq m letting by Chaussea in Médiacité contribute to the activity. Shopping Centres continue their mutation to become strong retail destinations by offering a better commercial mix and providing leisure and Food & Beverage diversification.

Out of Town Retail is also at record level with already 247,000 sq m of take up observed. Food retailers such as Jumbo and Albert Heijn continue to drive activity and are on a strong expansion. However, this trend should come to a halt in the coming months as the market is slowly approaching saturation. Home furnitures’ retailers also contribute to this robust activity, namely X2O in Ghent (1,800 sq m), JYSK in Tournai (1,550 sq m) or Impermo in Quaregnon (1,400 sq m) this quarter. Activity in the Out of Town Retail is also driven by new schemes entering the market such as Malinas, Rich’L (delivered in October 2022) or Westpark in Veurne (opening in November 2022) which are offering qualitative architecture, high environmental performances and strong accessibility.

BELGIUM

Retail Q3 2022

Footfall continues to rise in the different regions of the country.

According to information collected by our partner MyTraffic, footfall across the country continues to rise in the three different regions of the country Flanders is the best performer with footfall above COVID-19 levels In Wallonia, footfall is on a continuous rise since the beginning of 2022 and are around pre-COVID levels

The evolution is similar in Brussels though at lower levels Indeed, despite being on the rise since the beginning of 2022, footfall is currently around 60% of pre COVID levels.

As energy prices will weigh on consumers’ purchasing power in autumn and winter, it will be critical for retailers to follow future evolutions closely and to adapt rapidly to potential changing consumers’ patterns.

Prime rents increased in every market segment despite uncertain context.

Despite the mitigated economic context, prime rental levels have been revised on the upward in Q3 2022 in all market segments. Inflation is pushing rental levels on the upward for existing leases as forecasts predict 9% increase in 2022 and 7.3% in 2023 (Health Index). As a consequence of important rental increases, retailers could decide to move and sign new leases at market levels, sometimes in buildings offering better environmental performances (to benefit from energy savings). This factor, combined to an increasing polarisation of the retail market and a bigger focus on the best locations, contribute to slight upward movement of prime rents in Q3 despite the context.

Prime rents for the High Street segment increased by 50 EUR this quarter to reach 1,600 EUR/sq m/year in the Meir (Antwerp). Prime rents remained stable at 1,550 EUR/sq m/year. The other High Streets of the country also recorded some increases this quarter According to our forecasts and despite turmoil, stability is expected next year and prime rental levels should rise rise gradually to reach 1,675 EUR/sq m/year in 2025.

In the Shopping Centre segment, prime rents also increased to reach pre-COVID levels at 1,200 EUR/sq m/year. Stability is also expected all along 2023 as the context remains currently uncertain. Should the economic outlook follow the most recent forecasts, prime rents could rise again as from 2024 to reach 1,275 EUR/q m/year by the end of 2025. Worth mentioning that average rental levels will follow the opposite trend as we will observe a widening gap between prime and secondary shopping centres and even between prime and secondary locations within a shopping centre

Benefitting from robust performances on the occupational market, prime rents increased to 170 EUR/sq m/year in the Out of Town segment, coming from 160 EUR previous quarter. They are expected to increase faster than in the High Streets and Shopping Centres and should stand around 180 EUR/sq m/year in 2025.

FOOTFALL INDEX (Base = 100

Source: MyTraffic

Note: Index based on 15 High Streets across Belgium and 12 Shopping Centres across Belgium

PRIME RENT BY SECTOR (EUR/SQ M/YEAR)

Note: High Street and Shopping Centre are to be read on the

on the

Out

Brussels Flanders Wallonia

BELGIUM

Retail Q3 2022

Investment volumes almost at 2021 levels.

Though remaining at low level, the investment market records slightly better performances than in 2021 Yearto date, close to 500 MEUR have been transacted, the same level than for the whole 2021. No transaction took place in the Shopping Centre segment.

Most of the activity took place in Out of Town Retail which records 300 MEUR of investment. The biggest transaction of this quarter is the purchase of the Espace C Retail Park in Dour for 20 MEUR by Zabra Real Estate for a yield just below 6%. Food retailers remain popular as a recent portfolio transaction of three supermarkets below 5.30% confirmed.

The High Streets segment remains dynamic in the smaller lot size deals. Activity is indeed important for deals between 1 and 5 MEUR where private investors and/or family office are increasingly present As volumes are relatively low and investors do not need financing, some transactions are still observed at competitive prices.

Year to date, investment volumes in the High Streets segment amounts to 125 MEUR. Recent transactions were recorded in the Hoogstraat 6-8 in Antwerp, in the Rue des Tongres in Brussels or in the Bruul in Mechelen.

All three are smaller volumes with yields between 4.50% and 4.75%. Activity is expected to continue in this market lot size in the coming months despite the forecasted yields corrections

Important yields corrections possible as interest rates witness sharp increases.

As a direct consequence of rising interest rates decided by the European Central Bank to try to fight inflation, prime yields have been revised on the upward in every market segment Indeed, since July 2022, the ECB has increased its fixed interest rate two times, the first time by 50bps, the second one in September by an unprecedented 75bps. The repercussions on other interest and financing rates were immediate, with important tightening observed on the SWAP rate, the Euribor and the Belgian 10-year bond yield which is now between 2.75 and 3%.

Prime yields record different evolutions this quarter. In the High Streets segment, the increase is of 15bps to stand at 4.50%. The Shopping Centres prime yields have been increased more severely by 25bps to reach 4 90% In the Out-of-Town Retail segment, prime yields are stable at 5 60% this quarter but a slight increase is forecasted before the year end.

As economic turmoil is not expected to stop soon and as inflation inflation will remain high in the coming months, the ECB has already announced its willingness to increase its interest rates by a further 50bps before year-end and another 25bps in February 2023 At the time being, 10-year bond yields are forecasted to remain high up to 2025, though they could decrease sooner. Prime yields will undoubtedly follow a similar path and will continue to rise in 2023 They should stabilise or decrease as from 2024

VOLUME BY

PRIME YIELD BY SEGMENT

BELGIUM

Retail Q3 2022

With high energy prices, is sustainability the next big thing for retail?

Sustainability, environmental performances and ESG are on everyone’s lips since 2 to 3 years. ESG buildings and high environmental performances are now key for office, industrial and residential occupiers and investors.

In the retail market, the situation is a bit different at the time being While recent Retail Parks such as Malinas adopt high environmental standards, existing Shopping Centres have still to adapt to new norms. There is no doubt they will adapt gradually to new standards as it will be a key differentiator to attract clients and retailers, and finally potential investors.

The situation is more complicated in the High Streets segment Indeed, it is more difficult to adapt for different reasons: small private investors, existing urban fabric, urban heritage constraints... However, with high energy prices and consumers focusing more and more on ESG criteria all along the retail value chain, there is an opportunity to integrate high environmental performances in store design.

Current retail store design trends are a culmination of many events that are shaping consumer choices since the last decade: digitalisation and new technologies, climate change, and the ongoing pandemic. Physical retail stores designed and built as sustainable environments will have long term benefits for people and the environment. As such, sustainability will continue to define and influence retail design trends today and in the future by integrating, amongst others:

• Healthy materials not only to reduce negative environmental impacts but also to protect health and well being of clients and retailers;

• Energy efficiency to minimise world’s greenhouse gas emissions and energy consumption, especially in a high-energy prices context;

• Repurposed spaces, i.e. a sustainable way to convert an existing building or recycling its materials for new use (circular economy). It is also a way to preserve cultural heritage;

• Environmental certifications As investors are increasingly seeking certified buildings, retailers can do the same as certifications such as LEED or BREEAM provide a framework for healthy, highly efficient and cost saving green buildings.

CEDRIC VAN MEERBEECK

Head of Research & Marketing | Belgium & Luxembourg +32 2 629 02 86 / cedric.vanmeerbeeck@cushwake.com

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©2019 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources believed to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.