First signs of improving leasing activity
Global Real Estate Perspective, May 2021
Retailers continue to face unique challenges as a result of ongoing and evolving measures to contain the spread of COVID-19. However, the sector has begun to get a first glimpse of how the recovery of retail leasing markets is likely to progress.
In Mainland China, which has been successful in containing the spread of the virus, footfall and consumer behavior has largely returned to pre-pandemic levels, with retail vacancy rates stable or declining in Tier 1 cities. Various luxury retailers and international brands are also opening stores in secondary cities to target profitable growth and offset some of the lost sales in other major global markets.
The steady vaccine rollout in the U.S. and the UK is contributing to a sharp decline in COVID-19 infections, offering the prospect for consumers to socialize and go shopping again once restrictions have been eased or lifted. A few notable gateway cities, such as New York City and London, have seen a significant increase in leasing activity from a range of occupiers looking to take advantage of current retail real estate market opportunities.
Future trends: Relevant retail set to benefit from a broadening occupier base
- Short-term: The near-term outlook remains uncertain for most markets, with overall leasing activity still muted. However, early signs point to COVID-19 vaccines acting as a tipping point for major retail markets, causing leasing activity to strengthen. With many consumers keen to socialize again, the recovery in major retail destinations will benefit from pent-up demand and an attractive leisure offer as restrictions ease later this year.
- Long-term: While the rightsizing of store portfolios from large operators is likely to result in an overall reduction of space in the most developed markets, relevant retail places will profit from demand for space coming from a broadening occupier base with new operators and business models. A growing number of consumer goods manufacturers are embracing the direct-to-consumer business model, while manufacturers with smaller store portfolios are also expected to increase their retail footprint. Non-retail groups, including flexible office space operators as well as specialists running ‘dark stores’ and ‘dark kitchens’, are also showing interest in taking retail space.