Inflation in Luxembourg rose to a record high of 7% in April and only eased a little to 6.8% in May 2022. As a result, inflation is currently expected to reach a high 6.04% for the whole year 2022, before decelerating sharply as from 2023 to finally reach the ECB objective of 2% by 2025. Recent political evolutions shows no signs of a short term resolution of the Ukrainian crisis. Furthermore, growing tensions between China and Taiwan could potentially have an important impact on the global economy in the medium term. With rising uncertainties, central banks across the globe have taken the decision to increase interest rates to fight inflation, with a negative effect on public debt and a potential negative output for the economy.
GDP GROWTH AND UNEMPLOYMENT RATE INFLATION RATE -1%-2%0%1%2%3%4%5%6%7%8% 2017 2018 2019 2020 2021 2022 2023 2024 2025 GDP Growth Unemployment rate 7%6%5%4%3%2%1%0% 2017 2018 2019 2020 2021 2022 2023 2024 2025 Inflation
In these challenging times, GDP growth has been revised on the downward and should stand around 2.29% for 2023 before experiencing a rebound due to low inflation of 1.3% in 2024. This could potentially weigh on the unemployment rate which is still expected to decrease by the end of 2022 to reach 4.5% in Luxembourg before rising again to 4.8% by In2025.this context, retail spending are under pressure with growing concerns on household disposable income. In the medium term, this could have a slight impact on the retail real estate markets.
Uncertainties weigh on economic outlook.
M A R K E T B E AT Retail Q2 2022 Luxembourg Retail Market 3.75% Prime Yield (3/6/9 Lease) 2.95% GDP Growth 4.46% RateUnemployment 6.04% Consumer Price Index ECONOMIC INDICATORS Q2 2022 12 ForecastMo.12ForecastMo. ChgYoY ChgYoY 9,356 Take up 2022 YTD (sq m) Please note the economic data can vary significantly from one source to the other. Therefore, the figures provided should merely be used as an indication or trend. Source: Moody’s Analytics, Statec.lu, Eurostat 28 # Deals 2022 YTD 140 EUR/sq m/m. Prime rent High Street
Slowdown observed in Q2 on the Luxembourg retail occupational market.
Take-up by quarter (000s
M A R K E T B E AT
Retail Q2 2022
& # deals (RHS) Distribution of the take-up
Activity in the Shopping Centre segment was intense in Q2 with 7 transactions and a take-up around 2,500 sq m (3,100 sq m since the start of the year). The biggest transaction is the 1,270 sq m letting of New Yorker in the Topaze Shopping Centre Fashion and Food & Beverage activities drive the take up in the different shopping centres of the country We could potentially assist to an upsurge of activity in the years as some ageing shopping centres will need important refurbishment to adapt to new standards, though the economic and geopolitical context could delay owners’ decisions. Conversely to previous years, activity is slightly lower in the Out of Town retail segment as 3,400 sq m are recorded year to date This is mainly due to a very low activity in Q2 as only one transaction was observed in Contern As this retail format is increasingly appealing for retailers, clients, developers and investors (see the acquisition of the Escape Retail Park by Patrizia later in this report), activity should be back to normal in the coming months.
Overall, the High Street sector recorded a take up of around 2,830 sq m (33% of the total take up). 7 transactions were observed in Q2 22 The High Street landscape is still in a profound mutation in the vicinity of the station, with several developments ongoing If the surroundings of the station are currently impacted, the future looks bright for this area
segment Consumers’ confidence Index 120100806040200140120100806040200 2015 2016 2017 2018 2019 2020 2021 2022 Q1 Q2 Q3 Q4 # deals 100%80%60%40%20%0% 2015 2016 2017 2018 2019 2020 2021 H1 22 Shopping Centre Main Street Out-of-Town -10-15-20-25-30-505
Luxembourg Retail Market
Consumers’ confidence remains at very low level. In March 2022, consumers’ confidence felt back to its historically low level and remained at this stage since then. Rise in energy prices, high inflation and the Russian invasion of Ukraine weighed on consumers’ confidence. The components of the indicator have evolved in various ways these last months Households’ perceptions regarding their personal financial situation and their intentions in terms of major purchases seem to stabilised. In the meantime, their expectations regarding both the general economic situation in Luxembourg and their expectations regarding their own personal financial situation have worsened. This could potentially weigh on consumers’ retail spending in the coming months and finally weigh on the retail market if the economic and geopolitical tensions are set to last longer than expected. sq m, LHS) by market
After a decent 6,000 sq m of take-up recorded in Q1 2022, a slowdown has been observed during Q2 as 3,300 sq m was recorded. As a result, activity is around 9,350 sq m for the first half of the year, a 48% down compared to 2021. Despite this decrease in terms of take up, close to 30 deals have been observed year to date, a level relatively similar to previous years. Activity on a par between the different market segments.
Fashion and Sports retailers confirm their resilience in this unprecedented market. Courir will open a new store in Knauf Schmiede for example, while Footlocker signed a deal in the M2 during the first quarter of the year.
250200150100500 Main Street Shopping centre Out of Town 12 4 2 111 4 Food & Beverage Fashion Sports & Leisure Services Health & Beauty services Supermarket Furniture Others/Unknown
However, the uncertain context and the high inflation could change these forecasts in the coming months as retailers will probably show more greater cautiousness
Luxembourg Retail Market
In the High Streets segment, prime rents stand at 140 EUR/sq m/month after several corrections observed since 2017. No changes were observed in Q2 2022. According to our latest forecasts and depsite the current context, they are expected to remain stable for the rest of 2022 and could even observe a slight increase as from 2023 (reaching 142.5 EUR) up to 2025 to reach around 145 EUR / sq m / month
Prime rents still expected to remain relatively stable despite current context.
Retail Q2 2022
M A R K E T B E AT
In the Shopping Centre segment, prime rents stand at 90 EUR / sq m / month and are not expected to increase before 2023. They should however reach the 100 EUR/sq m/month cap back in 2025. Out of Town retail prime rents should follow the same path than the other market segments and should rise gradually as from 2023 to reach 26 EUR / sq m / month by 2025 (compared to 22 EUR / sq m / month currently).
Distribution of the number of deals by retailers’ typology
Prime rents evolution by segment (EUR / sq m / month)
Food & Beverage operators dominate the occupational activity. The Food & Beverage sector continues its expansion all across Europe as well as in Luxembourg. Year-to-date, F&B operators amount for 12 deals on the 28 recorded. Following Pitaya, Pokawa or Prêt à Manger in Q1, KFC signed two leases this quarter in Knauf Pommerloch and in Noordstroos Shopping Centre This sector is expected to record solid performances in the coming years, following the shift in consumers’ habits and new societal models
One deal recorded in Q2. Uncertainties will probably limit the activity on the investment market.
No changes on prime yields in Q2. Slight increases awaited before year-end. No changes were observed on the prime yields level in Q2, namely due to the lack of comparables High Streets and Shopping Centres prime yields were revised on the upward due to the COVID-19 outbreak, but no changes were recorded since 2021. Currently, they respectively stand at 3.75% (coming from 3.25% at the end of 2019) and 6% (compared to 5 15% at the end of 2019, mainly due to growing concerns of investors for this asset class)
Rising interest rates and the uncertain economic climate will probably lead to slight increase before year-end and potential further uptick in 2013. Yields in the High Streets segment will probably reach 4% in the coming months while they could increase up to 6.15% or 6.2% in the Shopping Centres segment.
Retail investment volumes by segment (MEUR) Prime retail yield evolution 250200150100500300 2015 2016 2017 2018 2019 2020 2021 H1 22 Main Street Shopping Centre Out of Town 6,5%6,0%5,5%5,0%4,5%4,0%3,5%3,0%2,5%2,0% Main Street Shopping Centre Out of Town
Luxembourg Retail Market
The purchase of the Escape Retail Park by Patrizia for 34.5 MEUR is the only transaction observed in the first half of 2022 If the low level of investment observed these last years was mainly due to a lack of retail opportunities in the Luxembourg market, the unprecedented context will limit investors’ attractivity in the coming months As a result, investment activity is forecasted to remain at a low level in the coming years.
As the COVID-19 pandemic surged, many speculated that the increase of online retail activity would forever change the retail landscape, eliminating the need for the physical store. But today, online retail sales are levelling off at around 10% of total retail sales. Despite the current context, this is all an indication that retail stores are here to stay, because they do much more than just serve as a place to shop: stores drive growth for emerging brands, stores complete the brand experience, stores provide immediate access to product and stores are important to communities As stores are here to stay, in different formats and concepts, they could drive occupational activity. This should help on the gradual recovery of the investment market in the coming months However, growing concerns related to energy prices, inflation and geopolitical tensions could contribute to a deceleration of the retail activity, both on the occupational and investment market, across Europe in the coming months. Luxembourg is expected to follow the same trend though a greater resilience could limit this impact.
M A R K E T B E AT
Retail Q2 2022
Prime yields in the Out of Town segment have not been impacted by the COVID 19 outbreak and are perfectly stable since 2017 at 6%. They should remain at this level in the coming years as a result of more robust activity in this market segment. What to expect on the retail market in the coming years?
Retail Q2 2022 Luxembourg Retail Market M A R K E T B E AT A CUSHMAN & WAKEFIELD RESEARCH PUBLICATION Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 50,000 employees in over 400 offices and approximately 60 countries. In 2021, the firm had revenue of $9.4 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services.. ©2022 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. MARKET STATISTICS cushmanwakefield.comCÉDRICVANMEERBEECK Head of Research & Marketing | Belgium & Luxembourg +32 477 98 11 cedric.vanmeerbeeck@cushwake.com83 MARINE FETIQUE Retail Agency Luxembourg +352 661 799 marine.fetique@cushwake.com407 SEGMENT TAKE-UP(SQM)YTD PRIME (EUR/SQRENTSM/M.) INVESTMENTVOLUMES(MEUR) PRIME(%)YIELD Main Street 2,829 140 3.75% Shopping Centre 3,103 90 6.00% Out of Town 3,424 22 34,5 6.00% Luxembourg (Overall) 9,356 - 34,5SOME LEASE TRANSACTIONS Q2 2022 *Renewals not included in leasing statistics CITY PROPERTY SEGMENT TENANT SIZE (SQ M) Mersch Topaze Shopping Centre Shopping Centre New Yorker 1,267 Schmiede Knauf Schmiede Shopping Centre ONLY 380 Schmiede Knauf Schmiede Shopping Centre Jack & Jones 307 Kirchberg Infinity Shopping Shopping Centre Shamrock 193 INVESTMENT TRANSACTIONS Q2 2022 CITY PROPERTY SEGMENT PURCHASER SELLER VOLUME (MEUR) Capellen MG Escape Retail Park Retail Park Patrizia MG Real Estate 34