Increasing competition for quality retail space

Global Real Estate Perspective February 2024

Retail sales growth slowed in major markets during the second half of 2023 due to softer labor markets, higher interest rates and the gradual waning of the Covid-19 rebound effect. These conditions are expected to carry on affecting consumer demand in early 2024, but rising real wages and a continued increase in international visitors to urban destinations will likely support moderate growth in consumption this year before strengthening in 2025.

Leasing markets are still active in most key locations globally, supported by a range of retailers developing store expansion plans for the next three to five years as the worst disruptions to trading conditions stemming from the pandemic and e-commerce recede. With demand outpacing new construction over each of the last three years in both the U.S. and Canada, national vacancy rates have fallen to record lows. Leasing activity in Europe also remains strong with notable demand for space in larger cities, while the post-pandemic rebound continues in Asia Pacific despite signs of slowing momentum in some markets.

This article is part of JLL’s Global Real Estate Perspective

Future trends: Retail poised for continued recovery

Outlook for 2024: Real wage growth and rising international travel are expected to support continued retail spending growth in most major economies during 2024 despite muted economic conditions. North American leasing markets will remain active, supported by a broad range of companies looking to grow their footprints, although net absorption is likely to moderate with limited availability. In Europe, many prime locations are anticipated to see continued retailer demand and competitive tension for space, but strong leasing activity last year and a reduction in available prime space may lead to a moderate slowdown in leasing volumes. And the post-pandemic recovery in Asia Pacific is expected to remain healthy in most markets, with steady rental growth powered by a broad base of tenants including F&B, entertainment and fashion companies.

Long-term: Successful retailers have always been able to adapt to changing market conditions including competition from both online and offline channels, changing consumer shopping habits and increased operational costs. This is particularly true in mature and often saturated retail markets. Most retailers are now on a firmer financial footing than before the pandemic, but high inflation and interest rates are leading many to review their operational models, store formats and pricing strategies to improve their performance. While multichannel integration is now well-established for larger players, other areas in focus include consolidation into dominant locations; smaller store formats and optimizing routing to improve productivity; integration of showrooms and enhanced in-store services; and greater use of pop-up and flexible leasing.