MARKETBEAT LUXEMBOURG RETAIL H1 217 A la croisée des chemins
CONTENTS 2 Executive summary 3 Economic climate 5 Retail letting market 8 Retail investment market
LUXEMBOURG RETAIL H1 217 Executive Summary Year-to-date, the take-up stands around 18,2 sq m, above the last five-years average of 16, sq m, mainly helped by the 8, sq m of Jaguar and Land Rover in the ZAC Haneboesch II in Q1 217. In number of deals, activity is well-balanced between the three segments though in terms of take-up, the out of town deals represent the great majority of the activity (Figure 1). There is currently a lack of new supply in the shopping centres and retail parks segments. And this should continue in the coming months as the deliveries of major schemes such as the Royal Hamilius, the extension of City Concorde and the 75, sq m Auchan Cloche d Or are not expected before 218 or later. However, the pipeline for the 217 219 period stands around 28, sq m. In the main streets sector, we assist to a kind of inequation between available spaces and retailers expectations. As a result, negotiations take more time which have a negative impact on the activity. The prime rental levels are now on the stabilisation, after having recorded an upward movement in every market segment. In the out of town segment however, further slight increase are still potential as retailers interest remains at high level. Since the beginning of the year, close to 7 MEUR have been invested in the retail sector, already outpacing the level recorded for the whole 216. Private investors are mainly seeking prime assets in the high streets. After having recorded a strong compression, the prime yields are now stabilising at historically low level. 3,5% is the mark in the high street segment while it stands at 6% in the out of town. Prime yield for the shopping centre is at 5.25% but could experience further compression as new schemes will enter the market in the coming months. 28, sq m POTENTIAL RETAIL NEW SUPPLY IN THE 217 219 PERIOD 3.5% PRIME YIELD IN THE HIGH STREET SEGMENT Figure 1 Take-up ( sq.m) 35 3 25 2 15 1 5 Main Street Out of Town Shopping Centre Cushman & Wakefield Cushman & Wakefield Marketbeat Luxembourg Retail H1 217 2
ECONOMIC OVERVIEW Another strong GDP growth expected in 217. Despite mitigated performances in the beginning of the year, economic fundamentals remain extremely favourable and Luxembourg will outpace the Eurozone with a GDP growth should stand at a high 3.8% in 217 (Figure 2). Looking further ahead, the pace of growth is forecasted to cool slightly to an average of around 3.5%. However, Luxembourg is to continue to comfortably outperform the Eurozone (where growth is expected around 1.6% in the 218-22 period), and its neighbour countries. Figure 2: GDP Growth, in % 6% 4% 2% % -2% Belgium Germany France Netherlands EU-27 Luxembourg Consumer confidence on a strong upside. Consumer confidence index is globally on a strong upward movement since mid-214 and reached an all-time in May 217 (Figure 3). Robust consumer confidence, combined with automatic wage indexation, job creation and favourable financial conditions, are expected to lead to an acceleration in consumer spending and domestic demand in 217, we therefore forecasted a growth in the private consumption of around 3% this year. Figure 3: Confidence indices 2 15 1 5-5 -1-15 -2 Investment capacity of the corporate and exports will also be dynamic in 217 in Luxembourg. Central Bank of Luxembourg, January 217 Unemployment rate reached a low 6% in May and further decrease expected. Figure 4: Unemployment rate, in % The unemployment rate continued to decrease since 214 and reached a low 6% to reach 6.4%, its lowest level since 212 (Figure 4). Compared to the evolutions forecasted in the neighbour countries, lower decreases of the unemployment are expected in Luxembourg in the coming years but the unemployment rate is far lower. The employment market remains dynamic, despite a slight contraction in Q1 17. Indeed, in the first quarter of the year, growth in paid employment slowed slightly, dropping to +.7% over one quarter compared to +.9% in the final quarter of 216. Year-on-year, the growth is at a strong 3.3% increase. 12% 1% 8% 6% 4% 2% Belgium Germany France Netherlands EU-27 Luxembourg Cushman & Wakefield Marketbeat Luxembourg Retail H1 217 3
ECONOMIC OVERVIEW Inflation slightly increased at the end of 216. Inflation slowed to 1.9% in May and then 1.5% in June from over 2.5% in the first four months of the year. Overall, we now expect inflation of 1.8% in 217, slightly up from our previous forecast of 1.6% despite the recent weakness in oil prices (Figure 5). The evolution in the neighbour countries and the trend is also the same in the Eurozone, after two or three years with an inflation close to %, a strong rebound is observed. As a result, at the European level, the ECB could reach its goal of an inflation close but just below the 2% threshold in the coming months. The growth in retail sales should continue in the coming years. The Luxembourg healthy economy, helped by an aboveaverage purchasing power and an attractive fiscal policy contributes to an important growth of the retail sales (Figure 6). In 216 and 217, the yearly growth is above 5% while it is around 3% in the neighbour country. Even if forecasted on the decrease in the 218 22 period, the growth should remain above average in Luxembourg, around 4.4%. This should help the retail sector and should contribute to dynamic activity in the coming years. Luxembourg presents a healthy economy. The strong performances of the Luxembourg economy are also observable in the public debt and public deficit of the country. Indeed, the public debt stands at a low 18% currently and it is forecasted to witness further strong decrease in the coming years to post a 13% level in 22 (Figure 6). This is mainly linked to the very low public deficit observed in Luxembourg, around.5% per year while the threshold of the European Commission is set at 3% per year. Luxembourg benefits from strong macroeconomic fundamentals and presents a healthy economy, which could attract inhabitants, employment, corporate and investors. Figure 5: Inflation, in % 4% 3% 2% 1% % Belgium Germany France Netherlands Luxembourg Figure 6: Growth in retail sales, in % 3% 25% 2% 15% 1% 5% % -5% Figure 7: Public debt (LHS) and Public deficit (RHS) in percentage of the GDP 25% 2% 15% 1% 5% % Belgium Germany France Netherlands Luxembourg 2,% 1,5% 1,%,5%,% -,5% -1,% Furthermore, according to, in the year since the Brexit vote in the UK, Luxembourg has enjoyed considerable success in attracting large financial and insurance companies from London in the relocation race with other European countries, which will reinforce the economy in the coming years. Public debt Public deficit Cushman & Wakefield Marketbeat Luxembourg Retail H1 217 4
RETAIL LETTING MARKET TAKE-UP Solid start to the year. In H1 217, the Luxembourg retail letting market posted a dynamic activity, with around 18, sq m recorded on its territory, its second best start to the year since 211 (Figure 8). In number of deals, the trend is on a slight decrease since 211 as the supply is very limited. Year-to-date, around 4 deals have been recorded, in line with the half-year average. No significant changes are expected in the coming months, activity should thus remain stable compared to these last years. Out-of-town retail represents more than 7% of the total take-up, mainly helped by the 8, sq m occupation of Jaguar in the ZAC Haneboesch and the 2, sq m of a fitness centre in Limpertsberg. Conversely, activity is more limited in the main streets (around 3, sq m in H1 17) and in the shopping centres (around 2,4 sq m). Balanced activity in terms of number of deals. Since the beginning of the year, the activity presents a balanced picture in terms of deals. On the 38 deals recorded, the shopping centre amounts for 37% while the out-of-town retail and the main streets stands each around 31.5%. The Belval Plaza records intense activity in H1 17 with five different transactions, for a total of 7 sq m. Activity was also observed in the Knauf Shopping Centres in Pommerloch and in Schmiede, as well as in the Auchan Kirchberg with the arrival of Starbucks on 15 sq m. Figure 8: Quarterly take-up (s sq m, LHS) and number of deals 35 3 25 2 15 1 5 Cushman & Wakefield Figure 9: Number of deals by category 9 8 7 6 5 4 3 2 1 Q1 Q2 Q3 Q4 # Deals Main Street Out of Town Shopping Centre Cushman & Wakefield Figure 1: Average size of the deal, in sq m 9 8 7 6 5 4 3 2 1 Increasing size of the shop in the out-oftown retail. We observe an increasing size of the deals, and as a result, of the shops, in the out-of-town segment since 211, passing from 4 sq m to more than 1, sq m (Figure 1). Conversely, in the shopping centres, the average size of the shop is stable around 2 sq m. The delivery of new schemes in the coming months could potentially change this as the trend is also on larger shops in this category. In the main streets, the average size of the deal is on a slight increase since 211, though strict urban planning regulations make it difficult to enlarge the existing shops. 1.6 1.4 1.2 1. 8 6 4 2 Main Street Out of Town Shopping Centre Cushman & Wakefield Marketbeat Luxembourg Retail H1 217 5
RETAIL LETTING MARKET RENTS Towards a stabilisation of the prime rents. Demand for well-located space pushed the prime rents on the upward in the recent years, especially in the Grand Rue where available space was extremely limited. As a result, the prime rental level in the Grand Rue is at 215 /sq m/month currently and is expected to remain stable in the coming months (Figure 11). In the Avenue de la Gare, the trend was the same, though rental levels are lower and recorded around 1 /sq m/month in H1 217. Rents were and still are more stable in secondary main streets of the country. In the shopping centres, prime rents are on the increase since 211 and currently stand around 115 /sq m/month in the Auchan Kirchberg or 15 /sq m/month in the Cactus Belle Etoile, a level similar or above to the rents observed in the Avenue de la Gare. As in the main streets, prime rents are expected to remain stable in the coming years as a result of the increasing competition which will arrive with the delivery of large new shopping centres. In out of town sites like Foetz, rents are on a slight increase since 211 and currently stand at 21 /sq m/month (coming from 17 /sq m/month in 211). Conversely to the trend observed in the main streets or in the shopping centres and given the current demand for prime out-of-town locations in Luxembourg, these rents are expected to grow in the coming months to reach 23-25 /sq m/month. Figure 11: Prime rents, in /sq m/year 25 2 15 1 5 Main Street Out of Town Shopping centre Cushman & Wakefield A la croisée des chemins... In the main streets segment, we assist to a kind of growing inequation between retailers needs and the shops. As the competition with online retail is on the upside, retailers expectations are important, they are looking for prime quality assets on the best locations. The aim is to create a strong experience for clients, by developing new concepts, enlarging the stores, reinforce the brand. Retailers are willing to pay prime rental levels to achieve this quality. But urban planning regulations are quite strict and limit the possibilities to refurbish the frontage for example and also limit the possibilities to extend. Furthermore, the rental levels asked by owners do not necessarily match with the quality of the unit and the gap in rental levels between the prime area of the Grand Rue and some shopping centres for example could potentially lead to some relocation of retailers, though they do not attract the same clients. As a result, negotiations take more time and some shops are still to be let over a twelve-month period. However, the vacancy rate remains at very low level in the prime main streets of the country and there is few doubt that the delivery of the Royal Hamilius, combined with the tram and the growing economy of Luxembourg will contribute to a new start for the main streets in the coming months, as far as retailers expectations are met. Cushman & Wakefield Marketbeat Luxembourg Retail H1 217 6
RETAIL LETTING MARKET DEVELOPMENT PIPELINE Important projects in the mid-term. More than 28, sq m of new retail spaces are expected to be delivered in Luxembourg by the end of 219 (see Figure 13). This year will see the delivery of the Opkorn Arboria in Differdange (33, sq m), the extension of the shopping centre Massen (27, sq m with the extension) and the shopping centre Borders (6,5 sq m). The retail parks located in Bettembourg (1, sq m) and in Wickrange (24, sq m) are scheduled for 218. The extension of the shopping centre City Concorde is also expected next year. Iconic schemes are awaited for 219, namely with the Royal Hamilius in the inner city of Luxembourg, at the end of the main Grand Rue. The Royal Hamilius will become a new anchor point in the pedestrian shopping circuit, also thanks to the future tram station which will be located in front of the building. Figure 13: Pipeline, in s sq m 12 1 8 6 4 2 217 218 219 Retail Park Shopping Centre Cushman & Wakefield On the Kirchberg, the mixed-use project Infinity will add 6,5 sq m of retail (combined with 6,8 sq m of offices and 2, sq m of residential) at the entrance of the area, in front of the Philharmonie in 219. Another very large scale shopping centre project is awaited in 219 in the southern periphery of Luxembourg, the ongoing 75, sq m Auchan Cloche d Or, offering a 12,5 sq m hypermarket and a shopping mall in a fastly growing area. Existing situation & Pipeline (sq m) 1. 1. 1. Shopping centre - Existing Shopping centre - Project Retail Park - Existing Retail Park - Project Cushman & Wakefield Marketbeat Luxembourg Retail H1 217 7 Source : Cushman & Wakefield, ESRI
3.5% Prime yield in high streets reached historically low levels
RETAIL INVESTMENT MARKET Around 43 MEUR invested globally in H1 217. After a strong year 216 with more than 1,2 MEUR invested globally in Luxembourg, the first semester 217 witnessed a relatively slow start with 43 MEUR invested (Figure 14). The biggest transaction of the half-year is the acquisition of the Autoplis, a car showroom of 36 MEUR in Bertrange. The accommodative policy of the European Central Bank (namely the low interest rates environment and the quantitative easing), the increasing attractivity of Luxembourg in the post-brexit context should however contribute to another dynamic year on the investment market in Luxembourg. Figure 14: Quarterly invested volumes, in MEUR 1.4 1.2 1. 8 6 4 2 Q1 Q2 Q3 Q4 Cushman & Wakefield Lack of retail investment product Though investors appetite remains mostly oriented towards office assets, the retail invested volumes already stand higher than in 216 with close to 7 MEUR invested so far this year, compared to 43 MEUR for the whole 216. The retail sector represents as such 16% of the total investment volumes (Figure 15). Investments are mainly observed in the main street category with deals such as the Grand Rue 46 (14 MEUR), the Grand Rue 53 (1 MEUR) or one retail unit in the 1 Rue Philippe II (35 MEUR). Figure 15: Breakdown of investments by sector 1% 8% 6% 4% 2% % Private investors are the only ones active on the retail investment market in Luxembourg in H1 217, conversely to 215 and 216 where foreign institutional actors such as Redevco or Triuva were also on the market. Office Retail Industrial Other Cushman & Wakefield Prime retail yields under compression Prime retail yields are at historically low level in every retail segment (Figure 16). In the high street, prime retail yields are currently standing at 3.5%, observing a strong compression that started at the end of 214. For trophy asset, the observed prime yield could even be lower than 3%. No changes are expected in the coming months in this category. The compression is lower, though important, in the retail warehouse segment where prime yields are currently standing at 6% coming from 7% in 211. Figure 16: Prime retail yields, by retail segment 7,5% 7,% 6,5% 6,% 5,5% 5,% 4,5% 4,% 3,5% 3,% In the shopping centre segment, prime yields are more stable, recorded at 5.25%. However, we forecast a further yield compression in the coming months as new shopping centres will enter the market and should witness a huge appetite on the investment market.. Cushman & Wakefield Marketbeat Luxembourg Retail H1 217 Main Street Out of Town Shopping Centre Cushman & Wakefield 9
RESEARCH EMEA Elisabeth Troni Head of EMEA Research +44 2 3296 2121 elisabeth.troni@cushwake.com RESEARCH LUXEMBOURG Cédric Van Meerbeeck Head of Research Belgium & Luxembourg +32 2 629 2 86 cedric.vanmeerbeeck@cushwake.com EMEA John Forrester Chief Executive +44 2 3296 22 john.forrester@cushwake.com LUXEMBOURG Koen Nevens Country Head Belgium & Luxembourg Northern Region Leader +32 2 546 8 63 koen.nevens@cushwake.com RETAIL AGENCY Virginie Chambon Head of Retail Agency +352 27 21 33 4 virginie.chambon@cushwake.com ASSET SERVICES Olivier Lebrun Head of Asset Services +352 27 21 33 3 olivier.lebrun@cushwake.com CAPITAL MARKETS Arnaud de Bergeyck Head of Capital Markets Retail +32 2 546 8 77 arnaud.debergeyck@cushwake.com VALUATION Kris Peetermans Head of Valuation +32 2 546 8 76 kris.peetermans@cushwake.com CAPITAL MARKETS François Guiot Investment Advisor +352 27 21 33 13 francois.guiot@cushwake.com VALUATION Christophe Ackermans Head of Valuation +32 2 629 2 81 christophe.ackermans@cushwake.com Disclaimer This report has been produced by Cushman & Wakefield for use by those with an interest in commercial property solely for information purposes. It is not intended to be a complete description of the markets or developments to which it refers. The report uses information obtained from public sources which Cushman & Wakefield believe to be reliable, but we have not verified such information and cannot guarantee that it is accurate and complete. No warranty or representation, express or implied, is made as to the accuracy or completeness of any of the information contained herein and Cushman & Wakefield shall not be liable to any reader of this report or any third party in any way whatsoever. All expressions of opinion are subject to change. The data contained in this report is based upon that collected by Cushman & Wakefield. Our prior written consent is required before this report can be reproduced in whole or in part. 217 CONFIDENTIALITY CLAUSE This information is to be regarded as confidential to the party to whom it is addressed and is intended for the use of that party only. Consequently and in accordance with current practice, no responsibility is accepted to any third party in respect of the whole or any part of its contents. Before any part of it is reproduced, or referred to, in any document, circular or statement, our written approval as to the form and context of such publication must be obtained.