The recession in the Eurozone together with wide ranging austerity measures are having an impact on Western European retail markets, according to research conducted by BNP Paribas.
The overall findings suggest that the prime retail sector remains healthy and is undersupplied in the face of strong demand. In the most sought after locations, competition between leading international retailers is driving rents upwards.
Retail investment is significantly down in Italy
In other sectors of the retail market the picture is not as positive, particularly in the case of Spain and Italy where austerity measures have had the greatest impact on household consumption.
In these countries retail sales have fallen sharply and the impact on the commercial property market has seen prime rents in Madrid fall to their lowest level since 2008. The lack of financing means that few shopping centres are under construction and completions have been delayed. In Italy political instability has added to the problems facing the market and investment volumes were 70 per cent down in Q1.
In contrast, retail sales in France remain resilient and retailers such as luxury fashion brands are fighting for prime location properties.
As a result prime rents in Paris have risen to record levels and are heading upwards in regional markets. In addition shopping centre development remains dynamic, particularly in the Greater Paris area, and there has been a significant increase in investment in the sector.
Despite an economic slowdown, consumer spending in Germany remains among the highest levels in Europe and retail rents rose by an average of 5 per cent in the six largest cities during 2012.
Retail development remains healthy and shopping centre construction has been on an upward curve since 2011. This year will see the completion of several of these projects. However investment is down, shrinking by as much as 40 per cent in Q1 compared to the same period last year.
In the case of the United Kingdom the market continues to remain polarised, despite a small improvement in retail sales during Q1 easing the pressure on occupiers.
Central London locations continue to be in high demand and, as in the case of Paris, prime rents are at record levels. In the regions, on the other hand, rents have been slow to reach pre-recession levels. In terms of investment, the UK outstripped Germany as the biggest investment market in Western Europe with even the regions registering a strong performance.
With the effects of the global financial crisis (together with well documented changing consumer habits) continuing to hinder the retail market these findings are not surprising. However as the economic conditions and consumer confidence improve, industry insiders will be hoping the market will reflect this.
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