Q4 2022 | Retail Marketbeat | Belgium

Q4 2022

2022, a year that was anything but normal

After two years of ups and downs, marked by the COVID-19 pandemic in 2020 and booming economic activity following the post-crisis rebound in 2021, one might have expected somewhat 2022 to be a regular year. Finally, 2022 was an unusual year from every point of view.

Economic conditions have suffered throughout the year in the aftermath of the conflict in Ukraine. Europe is significantly impacted due to its reliance on energy imports. To fight soaring inflation, the European Central Bank (ECB) have passed successive rate hikes. While GDP held up well this year, price pressures have reached a high and a recession is looming. As a result, GDP growth is expected to drop to 1.1% in 2023. However, we anticipate just a little slowdown because Europe has already managed to reduce Russian gas imports without disrupting activity and is expected to gain from the same post-pandemic improvements.

The unemployment rate is expected to decline further next year to 5% before increasing again in the following years, according to Moody’s Analytics’ baseline scenario. However, according to latest figures, an increase in the number of bankruptcies, especially in very small and small entreprises, could lower this forecast.

Despite remaining above the ECB targets, inflation slowed in the last quarter of 2022 as the economy faltered However, annual inflation has been revised upwards to a new threshold of 9 74% According to the most recent forecasts, running inflation will continue in 2023, though on a gradual decrease, to reach 7.40% in 2023 before broadly closing in on the ECB 2% target as from 2024.

In this mitigated, though clearing context, consumers’ confidence is increasing since its lowest point observed in October 2022. Consumers are now more confident in their sparing capacities and their own financial situation, namely thanks to salary indexation awaited in January 2023 and some reductions of the energy prices. Consumers are also more confident on the global economic outlook in the coming months. This could contribute to a slight increase of the retail sales.

Take-up at new record in 2022

Letting activity reached new summits in Q4 2022 with close to 230,000 sq m of take-up recorded, namely thanks to important transactions in the Out-of-Town Retail segment. For example, a new 14,000 sq m garden centre is foreseen in Namur.

For the whole 2022, take-up stands at a historically high 582,000 sq m. An impressive number of transactions has been observed in Q4 with more than 400 deals recorded. This confirms the strong market dynamics witnessed in the previous quarters. As a result, the 1,000 deals cap has been reached for the second consecutive year.

More than 1,000 deals observed in 2022

Strong performances have been observed in the Out-of-Town Retail segment which records an 10% in the number of deals compared to 2021. With 350 transactions and a total take-up close to 380,000 sq m, this specific segment is the major contributor to the letting activity.

Activity is also higher in the High Streets segment with close to 490 transactions observed all along 2022. This is a 5% increase compared to 2021. The High Streets segment confirmed in 2022 a kind of revival of interest from retailers to locate in the best locations and assets.

Activity in the Shopping Centres decreased in number of deals though observed a strong increase in terms of take-up. Indeed, take-up reached a high 82,000 sq m namely thanks to the reopening of the Westland Shopping Centre in Brussels and the opening of new flagship stores such as KIABI in the Shopping Centre Les Bastions in Tournai or Nike in Wijnegem –Shop Eat Enjoy.

Food & Beverage concepts continue to expand

More than 160 Food & Beverage transactions were recorded all along 2022, confirming the fast expansion of this specific typology. Indeed, next to the expansion of strong operators such as Mc Donald’s or Burger King, we continue to assist to an important diversification of concepts, focusing on “gourmetisation”, clients’ proximity and cosy atmosphere.

The second most active typology is the clothing segment which recover will after several more difficult years, namely due to the exponential increase of the online retail. Retailers that have adopted a strong omnichannel strategy seem now to benefit from the complementarity between online sales and physical stores.

Despite a small deceleration in the Home, Decoration & DIY activity, retailers such as JYSK, Impermo continue their expansion.

Take-up by quarter (000s sq m, LHS) & # deals

Number of deals by segment

Most active retailers’ typology in 2022

BELGIUM

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Retail Q4 2022

Prime rent by sector (EUR/sq m/year) Positive outlook expected for the prime rents in 2023

Prime rental levels have been stable in Q4 after have been revised on the upward in all market segments last quarter. Inflation is pushing rental levels on the upward for existing leases as it reached 9.7% in 2022 and should stand at a high 7. 4% in 2023.

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).

Prime rents for the High Streets segment stand now at 1,600 EUR/sq m/year in the Meir (Antwerp). Prime rents remained stable at 1,550 EUR/sq m/year in Brussels (Avenue Louise and Rue Neuve) The other High Streets of the country also recorded some increases this year, namely Ghent where the Veldstraat now shows a prime rent of 1,450 EUR/sq m/year. According to our forecasts and despite uncertainties, 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 in 2022 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. 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 at the beginning of the year. 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.

High Street Shopping Centre Out-of-Town Retail

230

210

190

170

150

130

250 0 250 500 750 1000 1250 1500 1750 2000 2250 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Recovery on the investment market is confirmed

Thanks to a strong year-end, the total invested volumes in 2022 finally reached more than 730 MEUR. More than 100 deals were witnessed all over the year, the highest level since 2018. No transaction was observed in the Shopping Centre segment.

In Q4, several important transactions were witnessed in the High Streets segment, namely the sale of the Hotel Metropole in Brussels including its retail part (the ZARA on the Rue Neuve) for an approximate 60 MEUR by Lone Star, the purchase of the retail part of the Antwerp Tower for around 35 MEUR and the acquisition of the 11,500 sq m Korenmarkt 1 in Ghent by QRF for around 21 MEUR. This confirms our previous thoughts on a gradual recovery of the investment market in the High Streets segment, especially for prime locations and iconic assets. Globally in 2022, the total invested volumes in the High Streets segment reached around 320 MEUR.

The Out-of-Town segment reached a total investment volume around 410 MEUR for the whole 2022 thanks to robust activity observed all along 2022. In Q4, five transactions for a total above 43 MEUR were recorded.

Prime yields rose again in Q4. Stability is expected all along 2023.

The European Central Bank increased for the third time since July 2022 its base interest rate by 50 bps in December 2022. As a result, the main refinancing rate stands currently at 2.5% and this represents the highest increase since the creation of the Euro currency in 1999. The Belgian 10-year bond continued to rise in Q4 to reach 3 1% on the 30th December 2022, following the increase of the ECB interest rate.

As a direct consequence prime yields have been revised again on the upward in every market segment in Q4, following the increase observed in Q3. In the High Streets segment, the increase is of 20bps in Q4 to stand at 4 70% (compared to 4 35% in Q2) In the Shopping Centres segment, it is increasingly difficult to define a benchmark as no transaction has been observed since 2018. Following the market evolution and the situation on more active markets, it is reasonable to determine a theoretical prime yield around 5%. In the Out-of-Town Retail segment, prime yields stand now at 5.80% compared to 5.60% last quarter.

As economic turmoil is expected to slightly ease in the coming months and despite the future ECB increase of its interest rates in February 2023, the forecasts of the 10-year bond yield shows a slight tough continuous decrease up to 2025 Prime yields will probably follow a similar path and are now expected to remain relatively stable in 2023 before experiencing a slight decrease as from 2024.

Invested volumes by market segment (in MEUR)

Out-of-Town High Street Shopping Centre

Prime yields by market segment

Cédric VAN MEERBEECK

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

Jean BAHEUX

International Partner | Head of Retail Agency +32 478 96 08 61 jean.baheux@cushwake.com

A CUSHMAN & WAKEFIELD RESEARCH PUBLICATION

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