M A R K E T B E AT
LUXEMBOURG Retail Q3 2022
YoY Chg
12-Mo. Forecast
Odds of recession raises across Europe. Luxembourg less impacted at the time being. The Russian invasion of Ukraine and its repercussion have significantly deteriorated economic conditions. Due to its reliance on energy imports, Europe is severely affected, and Luxembourg is no exception. While Luxembourg GDP held up well in the first three quarters of this year, continued high inflation is expected to cause GDP to stagnate in the final quarter of the year and the first semester of 2023. The most recent figures indicate annual GDP growth is expected to be 1.65% in 2022, stabilising to at best 1.68% in 2023.
15,921
Take-up 2022 YTD (sq m)
45
# Deals 2022 YTD
145 EUR/sq m/m.
Despite the economic downturn, employment growth remained strong in the first half of 2022 creating additional jobs, and building on the momentum of two years with an unemployment rate down from 6.68% in 2020 to 4.46% in 2022. Unemployment is expected to increase to 4.63% in 2023 before stabilising in the coming years.
3.75%
Following a brief pause in July and August, inflation increased again in September. As a result, inflation has been revised upwards to reach a high 6.39% for 2022. This level will decelerate in 2023 to 3.55% before broadly closing in on the ECB’s 2% target from 2024.
Prime rent High Street
Prime Yield (3/6/9 Lease)
ECONOMIC INDICATORS Q3 2022
4.46%
YoY Chg
12-Mo. Forecast
Unemployment Rate
1.65%
Regarding our outlook, Cushman & Wakefield forecasting has elaborated a baseline short-term mild recession scenario in the Eurozone (50% probability). In this scenario, persistent inflationary pressures push the ECB to raise rates aggressively, see more here, stalling business investment and consumer spending. The Euro area economy would enter a mild recession beginning in Q4 2022 with three-quarters of negative growth, before returning to moderate growth in the second half of the next year. GDP GROWTH AND UNEMPLOYMENT RATE
INFLATION RATE
GDP Growth
7%
8%
6%
6.39%
Consumer Price Index
6%
5%
4%
4% 3%
2%
2%
Source: Moody’s Analytics, STATEC Lux, Eurostat, October 2022 0% 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.
1% 0%
-2% 20 18
20 19
20 20
GDP Gro wth
20 21
20 22
20 23
20 24
Un empl oymen t Ra te
20 25
2018
2019
2020
2021
2022 in fl ation
2023
2024
2025
M A R K E T B E AT
LUXEMBOURG Retail Q3 2022 Activity globally in line with previous years on the occupational market. 6,500 sq m of take-up were recorded on the Luxembourg retail market in Q3, the best quarter of the year despite unprecedented context. As a result, take-up is close to 16,000 sq m year-to-date, globally in line with previous years. 17 deals were recorded this quarter, bringing the total of the year to 45 transactions, just below the average. At the time being, the current economic and politic climate does not impact the activity on the Luxembourg market which is showing a strong resilience, as it was also observed during previous crises. However, as the conflict in Ukraine is not expected to end soon, energy prices should remain relatively high in the coming months and could weigh purchasing powers with winter approaching. As a result, retail activity could be affected by year-end, though repercussions on the take-up are forecasted to be limited.
Take-up by quarter (000s sq m, LHS) & # deals (RHS) 14 0
12 0
12 0
10 0
10 0
80
80
60
60
40
40
20
20 0
0 20 15
Main Streets drive the activity in 2022. Conversely to previous years, activity is the most important in the High Street segment in 2022. Indeed, year-to-date, close to 7,200 sq m of take-up is recorded (24 transactions), representing 44% of the total. Fashion brands such as JOTT (190 sq m in the Grand Rue 101) or Elisabetta Franchi (250 sq m in the Rue Philippe II 31) contribute to this high level activity in Q3 2022. Food & Beverage operators also continue their expansion on the Luxembourg market this quarter. Activity is also important in the Shopping Centres segment with 4,700 sq m of take-up observed so far this year. This quarter, Food & Beverage operators were the most active, namely thanks to two openings in the Shopping Centre Infinity, while the 1,000 sq m letting by Aldi in the Shopping Centre Espace is the biggest transaction.
20 16 Q1
20 17
20 18
Q2
20 19 Q3
20 20
20 21
20 22
Q4
# de als
Distribution of the take-up by market segment 10 0% 80 % 60 % 40 % 20 %
Activity in the Out-of-Town retail segment remains subdued since the start of the year. A low 4,000 sq m of take-up is observed year-to-date, far behind the 15,000 sq m yearly average observed between 2019 and 2021. The lack of new projects entering the market weighs on the activity as this format is still appealing for clients and retailers. However, very few projects are expected in the coming months and as a result, activity will probably remain lower than previous years.
Consumers’ confidence at historically low.
0% 20 15
20 16
20 17
Sho ppi ng Ce ntre
20 18
20 19
Mai n Stre et
20 20
20 21
Q3 22
Out-of-To wn
Consumers’ confidence Index 5
Consumers’ confidence continues to decrease and felt to its historically low level late September 2022. Rise in energy prices, high inflation and raising odds of recession weighed on consumers’ confidence. In September, households’ expectations regarding the general economic situation in Luxembourg have been revised downwards whereas those regarding their personal financial situation have registered a near-record drop, reaching new historical lows. In the meantime, households’ perceptions regarding their personal financial situation, which reached an all-time low last month, have improved whereas their intentions in terms of major purchases have picked up.
0 -5 -10 -15 -20 -25 -30 -35 01 -2 0 07 1 5 -2 0 01 1 5 -2 0 07 1 6 -2 0 01 1 6 -2 0 07 1 7 -2 0 01 1 7 -2 0 07 1 8 -2 0 01 1 8 -2 0 07 1 9 -2 0 01 1 9 -2 0 07 2 0 -2 0 01 2 0 -2 0 07 2 1 -2 0 01 2 1 -2 0 07 2 2 -2 02 2
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.
M A R K E T B E AT
LUXEMBOURG Retail Q3 2022 Food & Beverage operators represent 40% of the activity.
Distribution of the number of deals by retailers’ typology
The Food & Beverage sector continues its expansion all across Europe as well as in Luxembourg. Year-to-date, F&B operators amount for 18 deals on the 45 recorded. Following Pitaya, Pokawa or KFC the previous months, Thanh’s, Shamrock or Kotonias opened new stores this quarter.
5
If fashion retailers witness some difficulties in the current context, we observe a growing disparity between luxury and/or premium brands which are more resilient (namely with new leases from JOTT and Elisabetta Franchi this quarter) while the « mass market » segment is more struggling.
2 18 2
Services complete the podium also with 7 transactions year-to-date, namely driven by the opening of a 2,000 sq m Jim’s Fitness this quarter.
7
Prime rents on the rise in the High Streets. Further slight increases expected in the coming years.
7
Despite the mitigated economic context, prime rental levels have been revised on the upward in Q3 2022 in the High Streets and Out-of-Town segments.
In the Shopping Centre segment, no changes were observed this quarter. Prime rents stand at 90 EUR / sq m / month and they are expected to increase to 92 EUR in 2023. They should continue to rise gradually the years onwards to reach close to 100 EUR / sq m/month by the end of 2025. Out-of-Town retail prime rents also increased this quarter to reach 23 EUR/sq m/month (coming from 22 EUR previsou quarter). Despite the lack of activity in this market and the relative absence of new project, they are expected to rise gradually to reach 27 EUR/sq m/month by the end of 2025.
Servi ces
Fashi on
Spo rts & Lei sure
Sup ermarke t
He alth & Beau ty
Furni tu re
Oth ers/Unkn own
Prime rents evolution by segment (EUR / sq m / month) 25 0 20 0 15 0 10 0 50 0 20 15 20 16 20 17 20 18 20 19 20 20 20 21 Q 2 22 Q 3 22 Q 4 22 20 23 20 24 20 25
Inflation is pushing rental levels on the upward for existing leases and 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 stand at 145 EUR/sq m/month (compared to 140 EUR last quarter) in the High Streets segment. According to our forecasts and despite turmoil, stability is expected next year and prime rental levels should rise gradually in 2025.
Food & Beve rage
Sho ppi ng cen tre
Mai n Stre et
Out-of-To wn
M A R K E T B E AT
LUXEMBOURG Retail Q3 2022 50 MEUR invested so far this year in the Luxembourg retail market. No investment transaction was recorded on the Luxembourg retail market this quarter. As in the rest of Europe, Luxembourg is experiencing longer and more difficult transactions, a growing gap between asking and offering prices, and transaction repricing and/or asset withdrawals from sales because offers have not met expected price levels. The purchase of the Escape Retail Park by Patrizia for 34.5 MEUR is thus the biggest transaction this year. The purchase of the City Garden in the Avenue de la Gare 13-15 for 12 MEUR is the second biggest transaction of 2022. The sale of a Delhaize in Ettelbruck completes the podium so far this year.
Retail investment volumes by segment (MEUR) 30 0 25 0 20 0 15 0 10 0 50
No changes on the prime yields yet, though increases forecasted before year-end.
0 20 15
They should indeed increase by 25 bps in the High Streets segment to reach 4% in Q4 2022. In the Shopping Centre segment, they should rise stronger to stand around 6.50% by year-end (coming from 6% this quarter). They are also forecasted to increase by 25 bps in the Out-of-Town Retail segment to reach 6%. As a result of further rate hikes, further prime yield increases are inevitably expected in 2023. However, according to Where Do European Property Values Go From Here? the report’s baseline scenario (50% probability) expects ten-year government bond yields to trend down as from 2023/2024. However, in the current context, we think prime yields will rather remain stable between 2023 and 2025.
20 16
20 17
Mai n Stre et
20 18
20 19
20 20
Sho ppi ng Ce ntre
20 21
22 YTD
Out-of-To wn
Prime retail yield evolution 7,0% 6,5% 6,0% 5,5% 5,0% 4,5% 4,0% 3,5% 3,0% 2,5% 2,0% 20 15 20 16 20 17 20 18 20 19 20 20 20 21 Q 2 22 Q 3 22 Q 4 22 20 23 20 24 20 25
To counter inflation in the Eurozone, the European Central Bank has delivered two consecutive rate hikes, totalling 125 bps, and is expected to proceed with other rate increases in the following months. The pressure on European property values is evident. Indeed, prime yields, just like the 10-year bond, are rising across Europe, albeit to a lesser extent. No changes have been made on the Luxembourg retail market this quarter though first rises are forecasted before year-end.
Sho ppi ng Ce ntre
Mai n Stre et
Out-of-To wn
M A R K E T B E AT
LUXEMBOURG Retail Q3 2022 MARKET STATISTICS TAKE-UP YTD (SQM)
SEGMENT
INVESTMENT VOLUMES (MEUR)
PRIME RENTS (EUR/SQ M/M.)
PRIME YIELD (%)
Main Street
7,159
145
12,3
3.75%
Shopping Centre
4,716
90
-
6.00%
4,046
23
38,9
6.00%
15,921
-
51,2
-
Out of Town Luxembourg (Overall)
SOME LEASE TRANSACTIONS Q3 2022 CITY
PROPERTY
SEGMENT
TENANT
SIZE (SQ M)
Luxembourg
Rue Philippe II 37
High Street
Elisabetta Franchi
250
Luxembourg
Infinity Shopping Centre
Shopping Centre
Thanh’s
237
Beggen
Shopping Centre Espace
Shopping Centre
Aldi
Luxembourg
Grand Rue 101
High Street
JOTT
Luxembourg
K2 Ellipse
High Street
Jim’s Fitness
1,000 190 2,028
*Renewals not included in leasing statistics
PROPERTY
MARINE FETIQUE Retail Agency Luxembourg +352 661 799 407 marine.fetique@cushwake.com
cushmanwakefield.com
INVESTMENT TRANSACTIONS 2022 YTD CITY
CÉDRIC VAN MEERBEECK Head of Research & Marketing | Belgium & Luxembourg +32 477 98 11 83 cedric.vanmeerbeeck@cushwake.com
SEGMENT
PURCHASER
SELLER
VOLUME (MEUR)
Capellen
MG Escape Retail Park
Out-of-Town Retail
Patrizia
MG Real Estate
34
Luxembourg
City Garden
High Street
ICN Development
Redevco
12
Ettelbruck
Delhaize Grand’Rue 37
Out-of-Town Retail
Family Office
Trium
4
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.