European Retail Downsizes but Rebounds, Caution Still Advised

Retail in Europe is on the upswing as consumer confidence edges higher and inflation eases. Leasing is up, even though floorspace is diminishing and a growing number of retailers are collaborating with artists and musicians to increase their brand engagement and attract customers.

Analyzing 2,000 deals in 2023 in 13 European countries, Cushman & Wakefield reports “there has been positive upward growth in retail activity by number of deals…with focus on key locations where limited availability of appropriate space is likely to put upward pressure on rents….Retailers and landlords will continue to focus on making the most from their stores, such as driving footfall, omnichannel fulfilment or adopting new retail strategies.”

The report noted that leasing activities by mixed good retailers continued their growth streak of recent years in 2023, with significant expansion. They made up the majority of all retailer lettings, occupying 35% more floor space in 2023 compared to 2022, and striking 35% more deals. Activity was led by Danish brands especially Normal, Chinese brand Miniso, and Polish company Pepco’s Dealz brand.

“The key element of rapidly growing [mixed goods] brands’ offer is the variety of design-led products at affordable price points, marketed in compelling ways,” the report said. They tend to locate in shopping centers and typically occupy150-350 sqm, though Normal stores are generally larger at 400-600 sqm. “Many lay their stores out in a maze format, drawing shoppers to view the entire product range before exiting. Bold graphics and vivid colors are often utilized to create a sense of place characterized by style and fun.”

By leasing activity, fashion retailers were once again the most active in Europe in 2023, accounting for almost 40% of total leased area and one-third of all Cushman & Wakefield transactions. Food and Beverage followed though slightly fewer deals than in 2022 were struck. Personal Goods accounted for 13% of all deals, while Health and Beauty was the fastest growing segment with 10% of all deals and 7% of take-up, with both components 50% or more higher than in 2022.

Mass market retailers represented about two-thirds of both deals and take-up share, even though take-up dropped by 5% as stores chose to downsize. Deals by premium brand and Luxury retailers both increased.

The report noted that 63% of leases were for units smaller than 600 sqm, and 55% of leases for units under 200 sqm. The downsizing was observed across all sectors, except leisure. There was a 30% slump in deals for spaces of more than 2,000 sqm – including Home & DIY. However, about 20% more units between 600 sqm and 1,000 sqm were leased.

“A key trend which looks set to continue in 2024 is retailers’ cultural collaborations with artists and musicians,” the report stated. Once the preserve of luxury retailers, mass market and premium retailers are gate-crashing this area, particularly in fashion. Some collaborations have involved installations, special edition items and product design, but in-store events are also offered, with some retail landlords joining the party.

Retailers are also adopting strategies to increase footfall, including through sporting tie-ups and increased community engagement. Some are using stores as pick-up or return locations as part of omnichannel strategies. Some are also investigating the circular economy, “particularly the resale of secondhand goods as well as hiring-out and repair services.

Despite its modestly optimistic outlook, Cushman & Wakefield also urged caution. “It is important to be alive to the fragility of the positive trends in European retail and leisure,” it warned. Economic growth on the continent is still modest, margin pressure continues along with rising costs of staffing and financing. As available space diminishes there will be upward pressure on rents.