Experiences and services remain key for landlords to offset retail transformation

Global Market Perspective, August 2019

Experiences and services will continue to drive retail demand in coming years. Developers remain focused on mixed-use, experience-rich projects that combine retail with residential, hotel and office space, while landlords are increasingly integrating other uses into existing assets.

New experience concepts support U.S. retail market

In the U.S., net absorption declined by roughly 60% during Q3 from the same period in 2018. Despite this, the national mall vacancy rate remained unchanged at 4.5%, with rents rising by 5.5% year-on-year. One bright spot remains growth in demand for wellness products and services (fitness in particular) among younger consumers. This has resulted in a wave of new boutique and niche fitness concepts, with the number of fitness centres having grown 23.5% to 111,055 locations from 2010 to 2019. Fitness move-ins have steadily shifted away from freestanding retail to neighbourhood centres and malls, driving demand and keeping a lid on vacancy rates.

Retailer demand for prime space softens in Europe

Many retailers in Europe are focused on their transformation towards an omni-channel retail model, while managing their lease liabilities. Retailer demand for prime space across the region has softened, resulting in downward adjustments in the rental tone, notably across the UK and in the Netherlands in Q3 2019. European prime high street rents fell 0.4% on average during the third quarter, the first decline observed since Q3 2010.

Lacklustre rental performance in most Asia Pacific markets

In Asia Pacific markets, more selective expansion strategies and cautious retail spending has led to muted rental growth across the region. While some O2O (offline-to-online) brands continue to open brick-and-mortar shops to tap into their online popularity in China’s Tier 1 markets, more challenging market conditions have led to landlords becoming more accommodative in certain markets and more drawn-out leasing negotiations.