RETAIL

Keypoints

  • Vacancy rates continue to decline, yet slowly in major cities
  • Retail market moves towards the next phase of recovery of rental levels and values
  • Tax debts and personnel shortage limit growth for the time being

Economy is open, but high prices, staff shortages and taxes inhibit recovery

Retail sales were 16.5 percent higher in the first quarter of 2022 compared to the same period a year earlier. Non-food sales grew by almost 58 percent, especially in the clothing segment. Part of the turnover was still sold online, but the share in total turnover was 25 percent lower than a year ago. Online sales of clothing stores were even 43 percent lower (CBS, 2022). At first glance, it looks good for the retail market, but dark clouds are gathering. For example, the high inflation rate of 9.7 percent at the end of March is having a major impact. Companies are often unable to pass on sharply increased purchase and transport costs to consumers. This puts margins under pressure. Then there are the payment arrears to the tax authorities. Many companies took advantage of support measures and requested tax deferrals. These payments are now coming back on track, but the timing is lousy. It is expected that small and medium sized enterprises (SMEs) will be particularly affected where financial reserves have shrunk due to corona.

Large international players are likely to be able to absorb this. In March, the number of bankruptcies increased, especially in the trade sector. And then there is the staff shortage. The strong recovery after the pandemic has fueled demand for staff, but personnel are proving difficult to find. At the end of December, there were over 77,000 open jobs in the trade sector, up 96 percent from December 2021. New figures in May will not show a decrease in the staff shortage; stores, in particular, are having a hard time. As a result, retailers are not taking full advantage of increased demand. The aftermath of the corona period and the war in Ukraine seem to be slowing down the recovery, but the market is slowly but surely crawling out of the valley.

RETAIL SALES (% Y.O.Y.)

Source: CBS (2022)

VACANCIES PER SECTOR (Q1 2011 - Q4 2021, THOUSANDS)

Source: CBS (2022)

The sentiment in the retail market is gradually improving

Sentiment in the retail market is improving, but the scars of the corona period are still visible. The average vacancy rate in the Netherlands decreased to 6.7 percent in the first quarter. This is partly explained by the decrease in the number of retail units. Many stores are being repurposed for other functions, but mainly in the smaller shopping areas. Institutional ownership is concentrated in the larger cities, where vacancy rates are still high. Nevertheless, demand is picking up and vacancy rates are declining. Prime rents rose for the first time in a long time in The Hague, Arnhem and Eindhoven. Elsewhere, prime rent levels remained stable, with the exception of the downtown area of Utrecht. The large correction of the past quarters does not seem to be continuing. This movement is confirmed by the economic cycle clock of the user market. It shows that the markets are slowly moving from the bottom left to the bottom right quadrant. This is where rental growth is taking place and prime rents are starting to rise.

VACANCY IN DOWNTOWN AREAS Q1 2022

Source: Locatus (2022), edited by Syntrus Achmea Real Estate & Finance

ECONOMIC CYCLE OF THE USER MARKET Q1 2022

Source: C&W (2022), edited by Syntrus Achmea Real Estate & Finance

Strongest growth in footfall in district shopping centers on weekdays

In the first quarter, most restrictive measures were lifted and it again became possible to visit shopping areas as usual. This was reflected in the increased footfall, yet in downtown areas the footfall is still 25% lower than before the corona period according to RMC. For the major cities this is partly explained by the slow return of tourists, but there seems to be more to it. The 2021 Shopping Flow Survey shows that recreational shopping is giving way to specialty shopping. Often a store is still the primary purpose of a visit, but the recreational offerings are drawing specialty visitors. A consumer wants to try a product, wants advice or wants to use the product immediately. Despite the lower footfall, sales increased in physical stores. This implies that consumers still purchase products in physical stores. Hence, physical stores are still important to increase turnover.

An analysis of the footfall in some district shopping centers in our portfolio shows that it is indeed increasing, but the extent differs per day. The number of visitors on Saturdays is growing less fast or is even lower than last year. On the other days the growth is stronger. Saturday is still the busiest day and Friday is now in second place, while that spot was previously held by Thursday.

Consumers may prefer to do their shopping at a quieter time and avoid the typically busy Saturday. Moreover, many consumers still work at home for a large part of the week and can arrange the working week more flexibly. Specialty shopping requires less time and therefore fits in in-between moments. Most shopping areas are focused on recreational shopping, but will have to start supporting the increased specialty shopping.

THE FOOTFALL PER DAY IN 2022 COMPARED TO 2021 (JANUARY - APRIL)

Source: PFM (2022), edited by Syntrus Achmea Real Estate & Finance

The investment volume of retail is increasing

Activity in the investment market increased in the first quarter of 2022. Transactions are no longer limited to food and transformation properties, but also reveal an increased interest in primary shopping streets. Some examples are Doezastraat 8 in Leiden, Spuistraat 46-48 in The Hague and two properties from the Rubens portfolio in Deventer. In addition, the sale of the HUF building in Rotterdam was also announced. The prime initial yields of high street remained stable in all markets in the first quarter of 2022. For district centres and neighbourhood shopping centres, they even decreased by 10 and 5 basis points, respectively. With interest rates rising again and initial yields in other sectors at historically low levels, a relatively favourable entry point is emerging for retail. In addition, the economic cycle clock of the investment market shows that the markets are slowly moving into the next quadrant in which there are prospects for value growth.

ECONOMIC CYCLE OF THE INVESTMENT MARKET Q1 2022

Source: C&W (2022), edited by Syntrus Achmea Real Estate & Finance

Outlook

Economic sentiment has improved slightly compared to last quarter's outlook. However, economic growth is under pressure, inflation is extremely high and persisting for longer, interest rates are rising and the war in Ukraine continues. As a result, the outlook for the commercial sector is somewhat uncertain. Companies were granted tax deferrals to get through the corona period. Henceforth they have to pay taxes again, but have low reserves on their balance sheets while prices are rising. Retailers in particular cannot increase their prices due to the competition. As a result, margins will be under pressure in the coming period. This may be the final push for smaller entrepreneurs to cease operations or file for bankruptcy. According to the CBS, the number of bankruptcies has increased slightly, more companies have been closed down and fewer have started up. Compared to the period before corona, these numbers are limited, but it follows a period with a historically low number of bankruptcies. There is still one element that may help the retailers this year, especially in the larger cities. The shopping areas are not running at full capacity as tourism has yet to take off. As long as Covid-19 remains under control, tourists may provide additional demand that will allow the retail market to recover further in the coming quarters.

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