Recovery gathering pace in key retail markets

Global Real Estate Perspective, August 2021

A growing number of major markets globally are reporting rising vaccination rates, and while uncertainty prevails in some markets as governments reimpose restrictions others are progressing in their re-opening plans, allowing more people to resume activities such as shopping, travel and attending the office.

Retail leasing activity is picking up in many major cities that either benefit from large catchments or high levels of affluence and which are on track to see a fast-paced recovery in economic activity. Mainland China’s key markets have been leading the recovery since mid-2020 and continue to improve. Retailer demand also began to pick up in London and New York City in the first quarter and this is now expected to spread to cities such as Paris, Munich and Hong Kong as the safe return of customers nears.

Retailers continue to be cautious about committing to new leases in markets that are vulnerable to a rise in case numbers and tightening of restrictions, but the pandemic is creating opportunities to secure quality retail space in some of the best locations at more attractive terms than prior to the onset of COVID-19. Several major retailers are aiming to capitalize on a limited window of opportunity in some of their target markets so they can tap into a returning customer base, grow market share and build brand awareness.

Future trends: Retailer demand pivoting towards prime destinations and convenience
  • Remainder of 2021: Consumer spending exceeded expectations in Q2 2021, and a number of major markets are projected to register record growth in retail sales over the full year following sharp declines in 2020. Online shopping is likely to continue at higher rates than pre-pandemic, but pent-up demand, growing footfall at physical stores and selective expansion or relocation activity are anticipated to drive a continued increase in leasing activity in major urban markets. New variants of the virus and evolving government responses may delay the recovery.
  • Long-term: Following a rebound in retail spending over the next two years, retail sales growth is forecast to soften, with physical retail spending only projected to return to pre-COVID levels by 2025 in a large number of developed retail markets. Retailer demand will continue to pivot toward prime shopping destinations and quality space in local neighborhoods. As major retailers progress the ‘right-sizing’ of their store portfolios, excess retail space, mostly lower-quality stock, will become more prominent and will require active asset management in the most mature retail markets.