In a surprising turnaround, select prime European retail markets are showing signs of recovery, according to Savills, the global real estate advisor. Notably, luxury spending in Europe has proven resilient despite prevailing constraints on consumer spending in the current year.
The recovery is attributed to the resumption of international travel and the surplus savings accumulated by specific consumer segments during the pandemic. Key luxury streets in Europe have experienced a robust average year-on-year footfall growth of 8.4%.
Rental performance on Europe’s prominent luxury streets remains strong, with average prime rents in Q3 merely 2% below the levels recorded in Q4 2019. This underscores the heightened demand for space in luxury shopping districts.
Savills emphasizes that the recovery is not confined to major luxury capitals like Milan, Paris, and London, extending to smaller luxury markets in Ireland, Spain, and Portugal. In these markets, average rents surpass 2019 levels by 1%, driven by restrained availability and predominantly domestic spending.
Luxury’s Impact Ripples: Momentum Gains in Mass Market Streets
While luxury streets led the post-Covid recovery, momentum is gaining in prime mass market streets across Europe. Declining vacancy rates, slightly better than 2019, are exerting upward pressure on rents, witnessing an average growth of 2.2% since 2021 in markets beyond major capitals.
The influx of online brands securing their initial physical stores is contributing to this momentum, partly fueled by increased online customer acquisition costs. Savills notes that the potential customer reach of prime high streets is a key factor attracting these brands.
Despite the cost-of-living crisis affecting retail spending in 2023, Savills anticipates an improvement. Forecasts for European spend in 2024 indicate a rebound with expected growth of 3.7% in real terms.
The retail sector, although impacted unevenly, has witnessed buoyancy in discount and convenience-driven retail spending. Consumer trends prioritize leisure and dining out, constituting 54% of total European retail sales in 2023, expected to increase to 55% in 2024.
Larry Brennan, Head of European Retail Agency at Savills, highlights the renewed focus on city-center locations, with brands seeking visibility amid the resurgence of footfall on key shopping streets. Vacancy on prime high streets is decreasing, signaling a positive trend.
Marie Hickey, Director in Commercial Research at Savills, emphasizes that all major European markets are expected to witness a retail sales rebound in the coming year. Growth markets like Ireland, Spain, and Portugal are set to continue their growth trajectory in 2024.
