In the UK, DIY stores were on the Government’s list of essential retailers permitted to keep their doors open during the pandemic and, as a result of so many households turning their attentions to home improvements during the long periods of lockdown, the sector has seen two years of robust growth.
Figures from DIY International confirm that the sector had been evolving very strongly pre-Covid, but accelerated during the pandemic. On average across Europe, the turnover per sq m increased by 7.7 per cent between 2019 and 2020. In 2021, many of the major DIY retailers, including Kingfisher, Hornbach and Leroy Merlin, published strong to record-high full-year results.
From a real estate perspective, the stellar performance of this sector can be largely credited with driving up investor demand for both retail parks and retail warehouses, with over 30 per cent of the total retail investment activity so far this year targeted at these assets, up from a five-year average of 20 per cent. And growing investor appetite for this asset class has put downward pressure on prime yields. At the beginning of last year, the average prime retail warehouse yield (5.19 per cent) was lower than the average prime shopping centre yield (5.32 per cent) for the first time on record. And in Q1 this year the average prime retail warehouse yield moved in below 5 per cent, to 4.93 per cent.
As we enter another period of upheaval for retailers, we are expecting a slowdown in consumer spending in the sector, with high inflation eroding the purchasing power of real income over the coming months. However, DIY retailers are again set to buck the trend, with many factors favouring this sector.
In general, squeezed household budgets tend to favour the DIY market, to the detriment of home improvement contractors who are a more expensive option. Additionally, with supply chains struggling and labour shortages across Europe, contractors are likely to be overbooked and unavailable. The DIY market has also been brought to the fore due to sustainability concerns and the trend for upcycling old pieces of furniture.
A widespread adoption of working from home has also led many consumers to consider adjusting their houses to suit their new lifestyle. This could notably be the case in countries where ways of working changed the most post-pandemic (Ireland, Luxembourg, Finland, Belgium and Denmark).
DIY retailers will not be immune to supply chain chaos or inflation woes but for investors, the security of this sector will continue to whet their appetite for retail warehouses and retail parks across Europe.
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