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Italian retail is back in fashion

Angela Goodings

Angela Goodings, Associate Director of Research, explores the changes in the retail sector across major cities in Europe.

The majority of retail locations across the globe have experienced a fall in rents since the financial crisis. Prime high streets in major city centres have, however, weathered the storm remarkably well, with locations such as London’s Oxford Street and Frankfurt’s Zeil setting record high retail rents. Competitive tension is back in full force with both international and domestic retailers prepared to outbid each other in order to secure the best locations. London has led the way, with rents now over 50% higher than they were at their peak in 2007, followed by Vienna and Frankfurt. Whilst Paris got off to a slow start, prime rents are currently 16% ahead of where they were in 2007. There has, however, been little movement in rental tones across Southern Europe; prime high street rents remained defensive in a period when other retail locations saw a 40% decline in rental tones.

The growth in retail spending attributed to these locations has however, not followed the pace, with high street rental growth questioning how affordable these high streets have become. For example, whilst London experienced strong growth in retail spending, increasing by nearly 25% on 2007, retailer rents have increased by 50% over the same time period, putting pressure on effort rates. Whilst many retailers will be outpriced from European prime high streets, we forecast continued positive rental growth within these markets as a result of the high demand from tenants looking to open stores, and use large city centres to launch their brand. This trend questions whether store productivity within prime locations is no longer a determinant of retail rent.

In most European markets, rents in prime high streets have grown faster than the growth in retail spending, however, Milan paints a far more positive picture. Milan’s prime high streets have witnessed 3% rental growth over the last seven years, despite retail spending for the city increasing by a total of 15%.  As a result, effort rates will have improved, putting Italian retail and other peripheral markets, which have followed similar trends, back on the agenda as we expect stronger rental growth returning to the market, and outperforming the European average.

Total retail sales value growth

Prime city centre rental index

                                                                                                                       

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Angela Goodings

Angela Goodings

Associate Director of Research

Angela's biography