Vacancy on prime mass market streets back in line with 2019 levels

Vacancy across Europe’s key high streets has contracted significantly over the last two years, driven by renewed occupier appetite. Both luxury and mass market streets have seen a similar downward trajectory from their 2021 vacancy peak. However, it has been mass market streets that have seen this trend accelerate over the last 18 months, with a 156 basis points (bps) contraction in 2024 against a 144 bps decline for luxury streets. As a result, average vacancy across prime mass market high streets in Europe is now back in line with 2019 levels at 3.6%.

There are, however, a number of streets that are outperforming. Prime streets in Spain have vacancy levels significantly below 2019 levels: Madrid’s luxury street of Ortega y Gasset and prime mass market Preciados have vacancy 450 bps and 730 bps lower, respectively.  Albeit in the case of the former, vacancy remains high in percentage terms against its European peers. London’s Bond and Oxford Streets have also seen similar downward pressure, with current vacancy also sitting below 2019 levels.

A relatively common trend across several luxury high streets is the fact that vacancy rates remain slightly elevated against 2019 levels. This may reflect the global slowing in luxury spend, tempering confidence to take new space, albeit for major luxury destinations brands are taking a longer-term strategic view. Rather, this elevation is more likely a reflection of the quality of space that is currently vacant as luxury brands have become increasingly more selective, preferring to wait for the right space in the right location to become available.

Rental growth accelerates in 2024

Reduced availability has facilitated an acceleration in rental growth, with prime high streets reporting an 8.4% increase year on year (YoY) in Q3 against the 0.5% reported twelve months earlier. As with vacancy, it has been the mass market streets that have been the lead performers, reporting a 9.9% uplift YoY. Luxury streets saw a similar acceleration, albeit growth has been slower at 5.9%.

This acceleration is closing the recovery gap to pre-pandemic levels.  Luxury streets, on average, were the first to bounce back and now have prime rents 5.2% above 2019 levels. Mass market streets were harder hit and their rental recovery more protracted, but this gap has squeezed significantly in 2024; as of Q3 2024, prime mass market street rents are 1.8% below where they were in 2019.

Core markets have become more competitive but still offer exciting opportunities

The core markets of London, Paris and Milan – those with the most ‘expensive’ retail high street rents in Europe – saw the strongest growth in prime rents in the twelve months to September 2024, albeit driven solely by London and Milan. Growth over this period averaged 10.1% against the all the city average of 8.4%. Mass market streets in these markets were the primary growth drivers, reporting an 11.1% YoY increase against 9.0% for luxury streets.

In the case of Paris, while we have seen stable prime indicative rents across both Champs-Élysées and Ave. Montaigne, rental premiums have been paid and key money secured for the best-quality space. Likewise, occupiers are offering creative deal structures, such as longer leases and/or turnover top-ups, in order to secure opportunities.

Despite the competitive nature of these markets, particularly when it comes to prime pitches, they still offer attractive opportunities. For example, while these markets lead in rental growth terms, prime headline rents are still in recovery; London’s Oxford Street and Paris’s Champs-Élysées have prime rents -17.6% and -34.8% below Q3 2019 levels. In the case of Oxford Street, the rebasing in Business Rates (property tax) has been an added attraction. And while availability of good-quality space is significantly constrained across both streets, the completion of new major developments on both in 2025 will offer exciting opportunities for expansive retailers and brands.

Bond Street regained its position as the most expensive retail street in Europe

A 20% increase in prime headline rents on London’s Bond Street in 2024 meant that it regained its position as the most ‘expensive’ retail street in Europe, a position it lost to Milan’s Via Monte Napoleone in the immediate aftermath of the pandemic. As of Q3 2024, prime rents are €15,100 per square metre per annum, marginally ahead of the €15,000 on Via Monte Napoleone.

The contraction of vacancy on the street, which has facilitated the upward pressure on rents, demonstrates the strategic and longer-term view luxury brands are taking, cementing Bond Street as one of the premier luxury destinations in the world. This is heightened by the number of prominent brands that have upsized and/or acquired real estate on the street. Even more compelling considering the loss of tax-free shopping for non-European visitors in late 2020.

Are Germany’s prime mass market streets poised for recovery?

Mass market streets in Germany have been laggards to the rest of Europe when it comes to vacancy recovery. Vacancy across its prime streets has been relatively stable since 2021, averaging 8.3%, and while vacancy contracted 40 bps in 2024 to 8.2%, it remains almost double that seen across wider Europe (4.5%).

Macroeconomic headwinds coupled with a more conservative consumer have come into play. However, the bigger issue has been the absence of a widespread rebasing in rents, as seen across other major European markets. Germany remains super attractive to expanding retailers and brands considering its size and the relative affluence of its population – the challenge for some of these expansive occupiers has been rental values. This looks to be improving with landlords in certain situations rebasing rents to support activity, and this is already starting to feed through to a pickup in deal activity and mandates.

Rebalancing of omnichannel strategies boosting occupational demand

As flagged in last year’s report, rental rebasing coupled with the brand visibility prime high streets can offer continue to propel occupier demand. However, one structural shift has come to the fore this year, and something that is not unique to high streets. That is retailers rebalancing of omnichannel strategies in the face of rising online costs.

This rebalancing has elevated the role of physical stores in combatting margin erosion as delivery and return-logistic costs have soared. For example, in the US, the cost of retail items returned totalled $744bn in 2023, almost double the cost in 2019 (US National Retail Federation).  Many brands and retailers, particularly in the fashion space, are employing strategies to mitigate these cost pressures, such as charging for postal returns against free in-store returns. As a result, retailers and brands are prioritising and investing into stores to encourage customer visits so that they can try and buy in-store.

Looking to 2025

Macroeconomic conditions will continue to shape the occupier landscape, with the headwinds facing global luxury spend expected to exert an influence on occupier decisions into early 2025. While mounting uncertainty may temper occupier appetite, many brands and retailers are taking a longer-term strategic view when it comes to prime high streets.  As a result, we expect demand for the best quality space in the best pitch, which will remain heavily constrained, to be buoyant.

Having said this, we do expect to see vacancy contraction and rental growth to slow in 2025, reflecting a return to more normalised performance.  Southern Europe will continue to be a lead performer, as will mass market streets in the core markets of London and Paris. Germany will emerge as a new hotspot for activity, creating downward pressure on vacancy across its prime mass market streets.

_{Read the other articles within European Retail Market below}