The future of the Belgian retail market
- A look back at the year 2022
- The outlook for retail in Belgium in 2022
- A look back at the year 2021
- A look back at the year 2020 and the outlook for retail in Belgium in 2021
What to remember from this unprecedented 2022 on the retail market?
2022 has been marked by unprecedented events: war in Ukraine, high energy prices, inflation, geopolitical tensions, rising interest rates… All these elements have a profound impact on the economy and should contribute to an important reshaping of the retail market in the coming months and years. Meanwhile, 2022 recorded unexpected performances.
1. Record take-up levels on the occupational market
Around 600,000 sq m of take-up should be observed in 2022, a never seen before level of activity on the Belgian market. According to Jean Baheux, Head of Retail Agency: “With more than 1,000 deals closed all along the year, retailers confirmed there are still expanding or optimising their retail networks to adapt to new consumers’ habits and market context”.
All market segments witness high levels of activity. Indeed, in the Out-of-Town Retail, more than 400,000 sq m of letting will be recorded, a historically high level. Activity is mostly driven by Food Retailers such as Jumbo, Lidl or Albert Heijn, which are rapidly expanding especially in Flanders.
The High Streets and Shopping Centres segments are also performing well thanks to Leisure and Food & Beverage operators (they represent close to 18% of the total number of deals) and Clothing retailers which are increasingly back on the Belgian market as Kurth Marissens, Head of Shopping Centre Retail Agency, confirms: “After previous difficult years due to the exponential growth of online retail and the COVID-19 outbreak, clients are back in physical store as demonstrated by footfall which is close or above pre-COVID levels. This benefits namely to Fashion retailers which represent more than 15% of the number of deals. Some are worth mentioning such as the comeback of Abercrombie & Fitch on the Avenue Louise, the opening of Peek & Cloppenburg in a brand-new flagship store in the Westland Shopping Centre or the recent opening of Kiabi in the Shopping Centre Les Bastions and a new flagship store for Nike in Wijnegem – Shop Eat Enjoy to name just a few. And other brands are also on the expansion these last months, opening new concepts and/or formats despite the current uncertain context”.
Fig. 1 – Most active retailers in 2022 YTD (in # deals)
2. Prime rental levels on the rise for the first time since 2017
Surprising at first sight, prime rental levels have been revised on the upward in every market segment despite the current context. Indeed, after several market corrections observed since 2017, especially in the High Streets segment, prime rents witnessed slight increases in the second part of the year 2022. They now stand at 1,600 EUR/sq m/year in the best High Street of the country (1,550 EUR in the beginning of 2022), 1,200 EUR/sq m/year in the Shopping Centre (versus 1,150 EUR in 2021) and they stand at 170 EUR in the Out-of-Town Retail (versus 160 EUR in 2021).
Jonathan Delguste, Head of High Streets Retail Agency comments: “Increases of the prime rental levels are observed in every market segment across the country as retailers adapt to new market standards and conditions. Indeed, important inflation and growing footfall in the best locations push the rents on the upward. As retailers are more and more willing to embrace highest environmental standards, we forecast gradual increases by the end of 2025.”
Fig. 2 – Prime rents evolution (in EUR/sq m/year)
3. Investment volumes on a gradual recovery despite rising interest rates
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 this year. Indeed, since July 2022, the ECB has successively increased its fixed interest rate to reach 2%. 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 retail yields have been revised on the upward these last months to adapt to this new context. In the High Streets segment, prime yields now stand at 4.50%. They reach 4.90% in the Shopping Centre segment while they are more stable in the Out-of-Town Retail segment, around 5.60%. As economic turmoil is not expected to stop soon, the 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 should continue to rise in 2023. They should stabilise or decrease as from 2024.
Fig. 3 – Prime yields evolution by segment
However, despite these rising yields and tightening of financing conditions, retail investment activity is on a gradual recovery since the beginning of 2022. Indeed, Victoria Tanret confirms: “Investment volumes are on the rise for the first time since 2018 and the total investment volumes should be close to 700 MEUR in 2022, the highest level observed since 2019. Despite the context, investors are still seeking to invest in the retail segment, though they are increasingly selective, looking for the best locations and the most active retailers’ typologies. We also observe a trend to bigger tickets this year-end, and this should be confirmed in 2023 with some important transactions in the pipeline for the coming months.”
A look back at the retail year 2021
2021 showed an important recovery on the retail occupational retail market. The global pandemic continues to have a significant impact on the global and local economy. The different waves of COVID-19 and subsequent measures continue to weigh on footfall and the frequentation of high streets and shopping centres more specifically. All these elements contribute to a profound reshaping of the Belgian retail landscape and continue to accelerate the changes observed in our lifestyles and consumption patterns in the coming years.
1. The occupation market record an impressive activity all along 2021
With 340,000 sq m of take-up recorded during the first 9 months of the year, the retail market is witnessing historically high level of activity. According to Jean Baheux, Head of Retail Belgium: “The year 2021 will undoubtedly be one of the best (if not the best) of the last decade in terms of letting activity. Following the brutal stop caused by the pandemic, retailers have revised their strategy these last months and they are now implementing it with a very positive effect on the take-up”. Out of Town Retail is driving activity with more than 250,000 sq m of take-up recorded in 2021, an historical level.
This impressive rebound in activity is also visible in number of transactions. Indeed, the number of deals recorded is 25% above the least years despite the continuous growth of the online retail.
2. The Food & Beverage sector represents more than 30% of the deals these last months
These last months, the Food & Beverage segment continues its fast revolution with the opening of new concepts and expansion of existing ones. Jonathan Delguste, Head of High Streets Retail confirms: “International brands as well as local concepts are willing to propose a new food experience, strongly linked to clients’ willingness to share their experience on social networks. We therefore assist to a multiplication and a gourmetisation of food concepts”.
Distribution of the number of deals by retailers' typology since 2020
The Fashion segment has been severely impacted in the beginning of the COVID-19 crisis but is now witnessing a rebound in activity as some important international brands are willing to optimise and/or expand their portfolio.
Benefitting especially to the Out of Town Retail market, discounters as well as DIY or Decoration and Home Furnitures retailers remain amongst the most active in the retail landscape and continue to boost the activity.
Other brands, active in the Electro & Telecom segment, namely Samsung, Hubside or Miele are also adopting a new strategy, willing to increase their visibility on some iconic locations and to focus on clients’ experience to differentiate themselves from the competition.
3. Footfall on the rise, though still below pre-COVID levels
(Index = 100 in January 2020)
Note: The index has been created taking the monthly footfall of major high streets in the different cities.
For Brussels, 5 different high Streets (8 different counting points). In Flanders, 7 High Streets. In Wallonia, 4 different High Streets.
(Index = 100 in January 2020)
Note: The index has been created taking the monthly footfall of major Shopping Centres in the different cities.
For Brussels, 4 different Shopping Centres. In Flanders, 4 different Shopping Centres. In Wallonia, 4 different Shopping Centres.
4. Prime rents still under pressure, though positive outlook expected in the medium-term
Prime rental levels have all been impacted by the COVID-19 crisis. However, the evolution is different depending on the segment concerned. For the High Streets segment, the COVID-19 outbreak reinforced the correction observed since 2017 with successive decreases observed. They decreased again in 2021 from 1,600 to 1,550 EUR/sq m/year. According to our forecasts, they should rise again in 2023 to reach their pre-COVID levels in 2024 or 2025.
In the Shopping Centre segment, prime rents remained stable since March 2020 at 1,150 EUR/sq m/year. Stability is expected in the coming months and a slight though continuous increase is also awaited as from mid-2022.
Conversely to the High Street and Shopping Centre, prime rents are more stable in the Out of Town segment. They currently stand at 160 EUR/sq m/year and are expected to remain stable all along 2021 and 2022. They should increase as from 2023, confirming the good health of the market segment as observed in take-up figures.
A look back at the year 2020 and the outlook for retail in Belgium in 20212020 was an extraordinary year in every respect. The global pandemic caused by COVID-19 had a significant impact on the global and local economy, affecting all sectors of activity. Lockdown, mandatory teleworking, and repeated closures of shops, bars, restaurants and theatres were all events which forced us to adapt and change our lifestyles and consumption patterns. The impacts on the various players and sectors of the real estate industry have been manifold.
1. The occupation market: globally less impacted than expectedThroughout 2020, a plethora of articles depicted an apocalyptic situation for the retail sector: changes in consumption patterns, an explosion of online shopping, a dramatic drop in footfall in shopping streets and shopping centres, retailers going bankrupt, turnover plummeting, negotiations on rent discounts between tenants and landlords, etc. There was indeed a slight decrease in the overall level of activity in terms of occupancy. -10% of retail space was let, meaning 16% fewer transactions than in 2019 (which was an exceptional year). These figures are good overall, and are better than was expected at the beginning of the pandemic. However, they reflect important differences according to the sectors in question (see below). The impact on rents is also very varied. According to Jean Baheux, Head of Retail Agency: “The impact of the health crisis has created a "communicating vessels" effect in household consumption, with less spending in the personal equipment sector and more in household equipment, sports equipment and the food sector. This explains why the market has not generally fallen as much as was feared at the beginning of the crisis".
2. Out-of-town retail has the wind in its sails and demonstrates fine future prospectsIn a market which is being forced to reinvent itself, out-of-town retail has shown great resilience and saw an increase in occupancy of almost 20% in 2020. The take-up is at an all-time high of 255,000 sq m, distributed over more than 250 transactions across the country. Jean Baheux, Head of Retail, confirms: "The presence of essential shops (supermarkets, food stores, but also DIY and garden centres) obviously acted as a catalyst for these good results. But beyond this, it is in reality the format of out-of-town retail which is increasingly appealing to consumers, retailers and developers. Accessibility, relatively low rents compared to the country's shopping centres and main shopping streets, the possibility of site reconversion and, in the current context, the ease of respecting social distancing between customers are all strong points of these clusters.” Out-of-town retail therefore has a bright future ahead of it, as confirmed by the development pipeline currently underway in the country and the growing interest in this type of format. This format may be perfectly suited to the increased use of click & collect and the desire of retailers to get closer to their customers. Out-of-town retail could therefore play a decisive role in the realisation of an omni-channel strategy for retailers, in particular thanks to the increased storage possibilities. Finally, it should be noted that out-of-ton retail was the only branch to record stable rents in 2020 despite the reduction in traffic following the various closures of non-essential shops. Prime rents currently stand at €160/sq m/year and are set to rise to €170 by 2023.
3. Shopping centres were the most affected, but are expected to recover in 2021Unsurprisingly, following their almost complete closure during the first and second lockdown, shopping centres were the most severely affected by the COVID-19 crisis. Only 45,000 sq m of take-ups were recorded throughout 2020, a decrease of almost 45% compared to 2019.
In fact, the "fashion" sector, which is usually the driving force behind shopping centres, has been the most affected. It has experienced a sharp reduction in commercial spending, growing pressure from online shopping and a significant drop in take-up. The complete closure of cafés and restaurants is also a heavy blow to shopping centres, especially those which had adopted a new commercial mix favouring the "shopping experience" and leisure activities with a purely consumer purchase-oriented logic.
While the situation for the coming months might look difficult, Kurth Marissens, Head of Shopping Centres Agency, remains confident: "The shopping centre format will continue to evolve towards greater integration with the Food & Beverage and leisure segment. Many F&B stores are being created or expanded in our country despite the COVID-19-related difficulties, and this trend will continue in 2021. Furthermore, the sports sector is a new driving force for shopping, as demonstrated by the rapid expansion of sneakers’ brands such as Snipes, JD Sports and Courir".
Rents have been severely impacted by successive closures. They fell by 15% on average for the premium segments (to €1,150/sq m/year for the best shopping centres), and by up to 30% for the more difficult locations. However, our forecasts indicate a gradual recovery in rental values from 2022 onwards. Prime rents could thus return to pre-crisis levels by the end of 2023.
4. Twin developments for the High Street, heralding differentiated outcomes in 2021
Overall, the High Street sector recorded an occupancy of around 110,000 sq m over the year, a 30% decrease compared to 2019. The COVID-19 crisis has strongly accelerated the trends which had already been observed in this segment before the epidemic. These trends have a dual character.
Indeed, it seems clear that the size of the retail units plays a major role in their real estate dynamics, both in terms of interest on the part of retailers and in terms of rental values. Generally speaking, small retail units of less than 200 - 250 sq m continue to be let at rents 15% lower than those of the end of 2019 (prime rents are now €1,550/sq m/year at Meir in Antwerp and Rue Neuve in Brussels, compared to €1,800 at the end of 2019. They were still at €2,000 in mid-2018).
Large units are suffering more, remaining empty for longer or being rented at 30 to 50% lower values than previously. However, it should be specified that the COVID-19 crisis is not the only underlying reason for this - it has merely accelerated the trend observed since 2018.
However, value forecasts are positive for the coming years, as we should see a slight increase in values from the year 2023 onwards (mainly for small and medium-sized units).
Jonathan Delguste, Head of High Street Retail Agency, explains: "Everything has become a question of nuance in the High Streets sector. While previously, location within the same city was important, it is now micro-location within a street which is paramount. Just like the size and shape of the shop, this can lead to substantial differences in values. Customer experience is also critical to the success of a shop.”
Like shopping centres, the experience (and the pandemic safety aspect) are essential elements for the success of tomorrow's shopping streets. Unlike shopping centres, however, the multitude of owners means that the public authorities need to participate in the design of public spaces. A real partnership between owners, public authorities, retailers and consultancy firms such as Cushman & Wakefield must therefore be created to develop a genuine renewal of the country's commercial thoroughfares, which will be beneficial for the revival of urban life.
5. How can we help you?
In these extraordinary times, we are more than ever at your side to support you in all your endeavours.
We have been the market leader1 for many years and we reinforced our leading position in 2020 with a team of experts, an undisputed knowledge of the market, and the development of new service lines.
Don’t hesitate to contact us for any questions related to your commercial property:
- Renew or negotiate your lease,
- Understand where your potential customers are situated,
- Analyse and optimise the performance of your shops
- Propose an optimal commercial mix
- Implement new concepts...and much more besides!
1 Based on the annual ranking published by Expertise News on 14 January 2021
Preparing retail actors for the new normal
Without a doubt, our world will be forever changed by the COVID-19 pandemic. Economic data suggest the Belgian economy will be severely hit in 2020 with a GDP decline around 7.8% External Link. The economy is expected to rebound in 2021 with an GDP growth of 5.6%, though risks and uncertainties on the downside remain high due to the current evolution of the sanitary crisis and its consequential partial containment measures. Concerns about unemployment remain high while consumers confidence is at this lowest level over the last two years.
In this context, total retail spending is set to decrease in 2020 compared to 2019 with a direct impact on the turnovers of retailers. The evolution of the COVID-19 crisis and the recent containment measures decided by the Government until the 13th December the soonest will also hit the retail market, and more specifically fashion and food & beverage activities.
Retail activity is under pressure
Year-to-date, roughly 300,000 sq m of take-up is recorded on the Belgian retail market, a 10% to 15% decrease compared to same period last year, with very different impacts depending on the sectors and/or retailers’ typology.
Some key takeaways are namely:
Shift to stores closer to home
Out of town retail is doing better than main streets and shopping centres
Fashion is struggling while sports & leisure products are booming
Food & beverage operators embrace takeaway and home deliveries
Retail footfall on a rollercoaster
The lockdown of March till May had dramatic consequences on the retail footfalls, with almost no traffic in the streets, shopping centres or out-of-town retail. While gradual encouraging signs were observed with footfalls “only” 20 to 30% below 2019 levels in October, the new containment measures currently in place put a new stop to this recovery and will negatively impact retailers activity and turnovers.
Growth of online retail
According to latest figures on online retail released in August 2020, Belgians rather shop in a physical store. However, online retail is exponentially growing (mainly thanks to a larger choice and better prices) since many years and witnessed a strong boost during the first lockdown, especially for fashion and accessories which observed a 20% growth. Food retailers also benefit from this rise of the online retail.
Still according to this report, close to 50% of the consumers favor brands which have developed an omnichannel strategy External Link, combining online sales with a physical store as they are considered as trusted brands.
Rents on the downside since the beginning of the year
Downward movements were already observed in 2019 in different Belgian retail high streets. The COVID-19 crisis contributed to reinforce this trend and also downgraded the prime rental levels of the shopping centres and out of town retail. They stand respectively 15%, 10% and 5% lower than the same period last year.
Prime Rents (€/sqm/year)
Situations are obviously very different depending on the city, the street and even the location within the same street or the shopping centre. In some specific cases, rental levels are 30% to 40% lower and the bigger units have more difficulties to find new tenants.
However, if rental levels are expected to remain relatively stable next year, we still forecast increases as from 2023. Actually, even if experiencing unprecedented challenges, the physical store is set to survive as it is part of a consumer’s engagement and online sales are only a complement.
Restoring retail confidence
The COVID-19 crisis accelerates the reshaping of the retail industry. The growing shift towards online retail, changing consumers’ patterns, demographic shifts… are constraining retailers to better understand their customers, to reinvent themselves and to develop new strategies.
In this moment, it is critical that retailers look forward and deploy new strategies. As retailers develop plans to re-open, re-engaging the consumer is going to be more complex, involving new safety and health standards, and developing a greater sense of mutual trust. Brands should begin to build communications and operational plans as from now to be positioned for success when they can reopen doors.
To be prepared for the new “post COVID-19” world, retailers should need to consider:
- Addressing the Store Environment: Retailers will need to review every aspect of the store environment from its size to fixture spacing to ventilation. A safe shopping experience means no more tight aisles, repositioning of high traffic areas and developing strategies to adjust for the number of customers in a store at one time. The challenge will be returning to normal levels of productivity while balancing the safety of customers. Click & collect or shipping from local stores will need to be successfully implemented to help drive physical sales.
- Integrating and Implementing Technology: Understanding how to provide a “touchless” environment in order to mitigate the spread of germs is going to be paramount. Touchless technology will need to be integrated into the store experience and check-out process. Artificial intelligence and virtual reality will help consumers see themselves in everything from clothing to eyeshadow and lipstick. These investments will need to be thoughtfully integrated to increase and enhance a brand’s experience.
- Utilizing Data and Analytics: CRM, mobile, and industry data will be critical to understanding the consumer’s preparedness to return to stores, malls, gyms, and movie theaters. Using this data, brands can engage consumers, listen to their concerns, and proactively address their needs. Data from third-party providers will give retailers advantages in the marketplace. This includes loyalty insights on products to drive inventory efficiency and margins, labor and operational statistics to reduce store costs, and portfolio optimization and store rationalisation.
- Introducing flexibility: retailers and retail owners need to work together to find the most relevant solutions to go through this unprecedented crisis. Introducing more flexibility regarding the leases and/or the rents could be profitable for both.
The new normal for the retail landscape
It is certain that the world will forever be changed by this pandemic. It is also certain that retailers will re-strategise, re-engineer, and re-invigorate their business to meet new standards and expectations.
Forward-thinking brands who start making these considerations now will be poised to win when consumers enter stores again. As our admired Fred Rogers said, “Often when you think you are at the end of something, you are at the beginning of something else”.
Cushman & Wakefield announces results of its survey of retail investors in Belgium
Conducted from 19th September to 17th October 2022 and directed at investors operating in the retail segment, the survey was completed by 91 individuals, most of whom (82%) were private investors.
Against an unpredictable geopolitical and economic background dominated by historically high energy prices, the war in Ukraine and rapidly rising interest rates, more than 67% of the investors questioned stated that they are adopting a somewhat opportunistic position when it comes to their investment strategy. Only 11% of the investors surveyed said that they had stopped making investments at the current time.
Among the reasons given for this rather wait-and-see approach to the market, the main one was linked to the financing conditions required by the banks, which more than 72% of investors consider to have become tighter. But generally speaking, more than 52% of respondents felt that overall sentiment in the investment market had deteriorated compared with the start of the year. The combination of these two factors was highlighted by those surveyed as acting as a brake on investment for the time being.
However, despite the difficult environment, the vast majority of respondents were still considering an investment in the retail segment. In fact, more than 92% of them intend to continue investing in retail, making it the most sought-after asset class in our sample. Victoria Tanret, Associate and Head of the Capital Markets Retail Department, confirmed this trend, saying: “The willingness of investors to purchase retail property is linked to the strong occupier market, which is currently performing at an all-time high, with many retailers expanding.” Investments in the residential sector were ranked in second position (45% of responses). Acquiring a mixed property (i.e. retail on the ground floor and offices and/or residential on the upper levels) rounded off the podium for the most sought-after products (36%). At the other end of the scale, the segments for healthcare property and offices brought up the rear.
Which are the segments of the market in which you would like to invest in the future?
It is also interesting to note that the investors questioned said they would prefer to buy in the city centre, or even in an AAA location, rather than invest in retail on the outskirts of town. Indeed, more than 57% of respondents said they wanted to invest in one of the country’s “Main Six”, as opposed to 34% opting for isolated retail units on the city fringes. The city / area of Antwerp was attractive to more than 70% of investors, followed by Brussels (62%) and Ghent (48%).
But beyond this preference for central locations, a new element has now come into play for investors: the type of retailer. Whereas location has been the dominant feature in the past, more than 79% of investors now pay attention to the typology of the retailer occupying the retail unit. It should come as no surprise to learn that it is the sectors that have performed best since the Covid-19 crisis are favoured most by investors. Consequently, the top 3 is dominated by the supermarkets (59% of investors), as well as the health & beauty sector (49%) and Food & Beverage operators (44%).
Which are the retail sectors that you focus on in your retail investment strategy?
Finally, when asked how they feel about the future of the retail investment market, more than 40% of those surveyed were more pessimistic than in 2021. Indeed, the majority of investors expect to see a contraction in selling prices by the end of 2023. This reduction in prices would be due mainly to a rise in yields, driven by the current increase in interest rates. More than 50% of the investors expect yields to undergo a correction of more than 15 basis points over the coming months to bring them into line with the current trading environment. Victoria Tanret concludes, “While it is true that the retail investment market will have to adapt to the current economic climate, our survey revealed that the vast majority of investors remain attracted to this type of property. This is namely thanks to the fact that the Belgian investment market has always shown great resilience to economic or political shocks. While corrections in values are inevitable given the current situation, we firmly believe that the market is currently offering and will continue to offer good opportunities in the months and years to come.”
What’s the future of the Belgian Retail Market?
The retail market, both on the occupational and investment side, is changing rapidly. COVID-19 outbreak, changes in demographic patterns, exponential rise of the online retail, emergence of new formats and retail concepts… The retail market is experiencing an unprecedented mutation. Retailers, owners, developers, brokers and clients are impacted.
In order to better understand these changes and their impacts on turnovers, footfall, rental levels, investment values, market activities amongst others, we conducted two surveys in May 2021 with you: owners, investors and retailers.
Discover now the main results of our investors survey (68 respondents) and retailers survey (79 respondents):
- 11 things you should know about our Retail Investors' Survey
- 13 things you should know about our Retailers' Survey
Do you want to have an in-depth look on the results and future retail trends?
Contact one of our retail expert to understand how we can add value to your real estate.