Trepidation surrounds discretionary spend impacting bulky goods retail 

With a European economy defined by high inflation and cost of living pressures over the last few years, the casual observer could be forgiven for fearing the worst for a sector traditionally characterised by, and overly exposed to operators, with a focus on bulky goods and big-ticket purchases.

Western Europe has seen the smallest spend growth for home furniture and floorcovering specialists (6%), and home improvement and gardening operators (4%); both the Dutch and French retail park markets cited a decline in housing market transactions for muted spend growth in these sectors. Indeed, the growth in spending we have seen over the last three years has almost exclusively been inflation-driven. In the UK, according to data from debit/credit card operator Barclaycard, average monthly spending fell across several such categories over the last twelve months, including home improvements and DIY (-7.0%), electricals (-2.1%) and furniture (-4.3%).

Essential goods sales boost retail park performance

Some of Europe’s more evolved retail warehouse markets have actually flourished as a result of recent economic uncertainty. What is clear is, that whether they sell household goods or food and groceries, it is retailers with a focus on convenience goods and essential product categories that have continued to drive footfall to the most successful out-of-town schemes across Europe over the last few years. This is evidenced by the fact that the most profitable retail parks are typically anchored by food stores, spend at which is often insulated from macroeconomic headwinds, as it is an essential spend category. The countries of eastern Europe are increasingly recognising this, which is why they have seen the most significant growth in grocery-related specialists, albeit this does reflect growth off a low base.

Poland provides a good microcosm of a wider trend amongst emerging European markets. Relatively under-supplied on a per capita basis, it has presented an interesting development and investment opportunity, one that has been realised when considering historical trends. Foodstore (usually discount) anchored schemes are increasingly being developed to service a growing number of smaller towns and cities across the county, with populations of between 50–100,000 people.

Value-orientated retail is driving the sector's resilience

Discounters, or operators offering value for money across a significant portion of their product lines, have also been best positioned to weather the economic headwinds in recent years, and have been the driving force for operator acquisitions across the continent.

In the UK, for example, 46% of occupied floorspace in the market was attributed to bulky goods brands a decade ago (including DIY, electrical, motoring, furniture and fixtures and fittings, such as kitchens, tiling, carpets and other floor coverings). At present, that has fallen to a quarter of all occupied space.

In its place, we have seen growth in value-orientated operators. Discount variety stores (including the likes of B&M, Home Bargains, The Range, Poundland and most recently OneBeyond) accounted for 5% of floorspace in 2014 and now account for 11%. Discount grocery saw the most significant growth of 7% in the last decade, now accounting for 9% of all floorspace off the back of the aggressive growth strategies of operators such as Aldi, Lidl and Iceland / The Food Warehouse.

Spain’s retail warehouse market is younger by comparison; however, similarities can be drawn. Its concept has been associated with product variety and affordable prices from inception, with the arrival of a number of new international low-cost operators further reinforcing this positioning: Pepco, KiK, Action, Kiabi and TEDi are some of the brands that have become successful additions and represent a diverse range of sectors including fashion, homewares, pet supplies, DIY, electrical goods, toys and cosmetics.

Denmark (24%) and Finland (43%) have the highest proportion of their total retail spend attributed to value operators as of the end of 2023. The UK, Hungary, and Spain, as well as a number of countries in northern Europe, also have significant shares of value-orientated spending. Chart 10 highlights the fact the markets with the smallest proportions of value spent are indeed those where growth in this category has been the highest, highlighting those markets that have begun to recognise the ‘value of value’ as part of a successful out-of-town offer.

Will competitive tension lead to further rental growth?

European markets that have focused on convenience-based, essential goods shopping, particularly those with a strong proportion of value-orientated and discount shopping, have seen occupational demand continue to grow.

In the UK, for example, we have seen 487 new store openings up to the end of Q3 2024, trending significantly below the long-term average and below the record-high numbers we saw both pre and post-pandemic. However, it is important to stress this reduction in take-up is not emblematic of a rescinding appetite for space from retailers in the market; it is simply down to a lack of supply. The desire for new stores has been sustained for some time and has come from a wide variety of operators, which has continued to drive down voids. The vacancy rate is just 4.6% in the UK retail warehouse sector at present, the lowest it has been since 2018.

Given the high demand and limited available space, it stands to reason that the UK market has seen positive growth in prime rents over the last twelve months. Indeed the strength of competitive tension in the market is why London is one of only three cities where we have seen positive prime rental growth. Vienna and Stockholm complete the other two, again largely a consequence of low voids, exacerbated by a restriction in new stock.

Despite a similar story for Lisbon and Madrid in terms of vacancy, prime rental growth remains flat in these markets, reflecting the fact each still has room to grow in terms of their overall market coverage. Vacancy in Spain, for example, is as low as 1% across prime assets, and only 5% for secondary. With 132 retail parks and a GLA (Gross Lettable Area) of 3.4 million sq m, excluding the standalone format, this figure represents 19% of the total GLA, which includes all retail formats.

However, compared with other European countries, the share of this segment in Spain is below the European average (26%), well behind economies such as the United Kingdom (37%), Germany (33%) and France (24%), where there is a greater retail park tradition. As a result, Spain has one of the highest retail park surface area growth rates in Europe over the last five years (22%), compared to the UK (3%) and Germany (4%). Moreover, this segment has become the leading player in retail development in Spain. In 2023, 60% of the retail GLA inaugurated was developed under the retail park concept, and its share is expected to reach 81% in 2024.

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