According to a recent report by Savills, the European retail markets, especially in the luxury sector, are displaying signs of recovery despite the challenges brought on by the COVID-19 pandemic. The resumption of international travel and the accumulation of savings by certain consumer segments have contributed to the resilience of luxury spending in Europe. Evidence of this can be seen in the significant year-on-year growth of footfall on key luxury streets, averaging at 8.4%.
Another positive aspect of the luxury retail market is the strong rental performance in Europe’s top luxury streets. Savills’ data reveals that the average prime rents across the 16 luxury streets being monitored are only 2% lower than pre-pandemic levels of Q4 2019. Considering the lows experienced during the peak of the pandemic, this improvement is noteworthy. Some of the famous streets being tracked by Savills include Bond Street in London, Avenue Montaigne in Paris, Via Monte Napoleone in Milan, and Ortega y Gasset in Madrid.
Interestingly, the report highlights that the recovery in luxury retail is not confined to the traditional luxury capitals of Milan, Paris, and London. Smaller luxury markets in Ireland, Spain, and Portugal have also experienced strong growth, with the average rents actually surpassing 2019 levels. This can be attributed to factors such as limited availability and a higher reliance on domestic spending in these markets.
Furthermore, the report indicates that the mass-market retail sector is also picking up momentum, with vacancy rates in prime mass market streets falling below 2019 levels. This has led to an upward pressure on rents in some markets, with an average growth rate of 2.2% since 2021. The expansion of online brands into physical stores has played a role in driving this demand as prime high streets provide a broader customer reach.
Despite facing challenges from the cost-of-living crisis, the report predicts a rebound in European retail spending in 2024, with a projected real growth of 3.7%. Consumer trends have shifted towards discount and convenience-driven retail as consumers seek savings on everyday items. Expenditure on leisure activities and dining out has also increased, accounting for 54% of total European retail sales, and is projected to rise to 55% in 2024.
Larry Brennan, the head of European Retail Agency at Savills, emphasizes the renewed focus on city-center locations as footfall in these areas has rebounded significantly. Brands are keen on enhancing their visibility to a larger customer base and taking advantage of the resurgence in foot traffic. As a result, vacancy rates on prime high streets across multiple markets are decreasing.
Looking ahead, all major European markets are expected to witness a rebound in retail sales in 2024. Growth markets like Ireland, Spain, and Portugal, which have defied the downward trend seen in Europe this year, are predicted to exceed 2% growth in 2024. Rental growth is anticipated to continue, particularly in markets outside of Germany and the Nordics. Key mass market streets with high footfall will also undergo diversification, with a stronger focus on food and beverage offerings as well as leisure activities. Flagship opportunities in London, Paris, and Milan are attracting new entrants from the Asia Pacific region.
For further information, please refer to the following links:
1. Savills website
2. Savills research
