Retail

What we predicted

1. Following the easing of Covid-19 restrictions, retail footfall has continued to grow. While city recovery has lagged, we expect their performance to improve with the return to the office and resumption of tourism. Outside of restriction periods, online penetration has fallen. In the year ahead we expect penetrations will increase – albeit at a much slower rate
2. Occupiers have regained confidence in the market – and for some, expansion is on the cards. However, there is an oversupply of space, so we expect continued pressure on rents. Retail parks will remain a popular investment choice, but repurposing opportunities are also expected to gain attention

What's happened so far

• Omicron hit retail footfall at the start of the year but has seen steady recovery since, albeit levels remain below pre-pandemic at -9%*. City centre footfall remained challenged, Greater London is –22%* versus pre-pandemic. While the recovery of international travel is underway, passenger numbers remain below 2019 and workers continue to visit the office less frequently
• Online penetrations moderated when non-essential retail reopened in 2021 - this continued in 2022. At 26.6%, the forecasted growth for the year has not yet materialised
• Rising costs are expected to cause some retailers to review their growth plans. That said many occupiers have already undertaken portfolio restructuring during the pandemic, and as such we anticipate vacancy rates will remain stable
• Investment levels have increased, with retail parks continuing to dominate interest – accounting for 72% of all transactions in Q1 2022. Several repurposing opportunities have now also come to market

* Google Mobility Data, Retail & Recreation 7 day average versus the baseline. The baseline is the median value, for the corresponding day of the week, during the five-week period 3 Jan – 6 Feb 2020.

What happens next

• While some additional footfall is expected for certain retail locations as international tourism continues to resume, with shifting worker and shopper habits it might be that we’re reaching the new normal for most retail locations for the time being
• Given the moderation of online penetration, we expect modest growth in internet sales. However, it remains unclear what impact the current economic climate will have on how consumers decide to shop
• Vacancy rates are expected to remain stable throughout the second half of 2022. However, given rising costs and economic uncertainty, occupiers are expected to reign in expansion plans
• Given the trajectory for interest rates, retail yields present an attractive proposition for many investors. Moving forward investor appetite for the sector will continue to match the levels seen in H1 2022. While repurposing opportunities are still likely to come to market, increased construction costs could delay actioning plans