In addition to declining sales, several factors will increase retailers’ costs in the Netherlands, according to the latest research report from international real estate advisor Savills. The rising price of procuring goods, pressure on the labour market, payment of debts to the Dutch Tax and Customs Administration, rent indexations and a significant increase in energy costs are among the challenges for the Dutch retail market. For instance, average wage costs per hour worked in the second quarter of 2022 were 4.4% higher than in the second quarter of 2021. However, energy costs in particular, will also lead to significant ESG improvements in the sector.

Raymond Frederiks, Senior Consultant Market Intelligence at Savills in the Netherlands, says: “The number of bankruptcies shows that current conditions are becoming more challenging for businesses in general. In the third quarter of 2022 there were roughly twice as many bankruptcies as in the same quarter of 2021. Although that number is considerably lower than before the pandemic, the above-mentioned factors are likely to increase the number of bankruptcies in 2023.”

Bart Oosterhuis, ESG Advisor at Savills in the Netherlands, says: “Due to challenging economic conditions retailers will make greater efforts to reduce the biggest cost items. Energy prices are rising disproportionately, so many retailers will want to make cuts there first, assisted by shorter payback periods for energy-saving measures. This will be the case for energy-intensive retail in particular.”

Analysis in the Savills report shows that the biggest consumers of gas and electricity combined are the hospitality industry and specialist shops. Preparing and storing food is generally energy-intensive, so such activities are most impacted by rising energy bills. Clothing stores, department stores, home furnishing stores and the like are less affected because their gas and electricity consumption is usually much lower per square metre.

Although it is necessary to make the retail market more sustainable in order to reduce energy costs, it is extremely important to look at what objectives and what indicators are used to gauge those sustainability measures. Making it mandatory for the owner to achieve a specific energy rating, as is already the case for houses and offices, will be considerably less effective in the retail market claims the international real estate advisor. Previous research by Savills shows that 80% of the emissions by retail property come from activities carried out by users. In addition, despite having a good EPC rating, users of retail premises may still consume considerably more energy than necessary by, for example,  keeping the doors open.

From that perspective, in the Dutch retail market it makes more sense to look at actual consumption, for example using an energy intensity indicator system such as WEii, instead of EPC ratings. After all, consumption is easy to measure and ultimately shows more about the actual sustainability of a shop than the snapshot that is a sustainability certificate or EPC rating.

Johan Spin, Retail Lead at Savills in the Netherlands, says: “Despite, and perhaps even thanks to, the sharp rise in energy costs, there is certainly hope for rapid sustainability improvements in retail property, but above all, tenants and landlords need to work together to make improvements. The updated Model Lease Agreement for Retail Space, published by the ROZ in January 2023, offers numerous opportunities to strengthen the cooperation between landlord and tenant.

Read the full research report here.