After years of turmoil, the retail sector is showing promise as a potentially compelling investment opportunity, according to Hines, a global real estate investment manager. A new whitepaper from Hines Research titled, “Retail’s Next Act,” delves into the dynamics providing tailwinds for a sector that has been transformed by the rise in e-commerce.
“We believe a new era for certain types of retail is here,” said David Steinbach, global CIO of Hines. “Retail fundamentals appear strong in many markets around the world, creating a powerful case for real estate investors to pay close attention to this sector.”
Highlights from Hines’ latest Retail report in Europe:
- Europe’s retail sector has seen some of the lowest numbers of construction starts since 2017, limiting new supply
- Pricing for high street retail in key European locations is down, yields are up, and the fundamentals make retail attractive for investment
- Recent rent growth in European High Street retail has been concentrated in luxury-oriented streets like Monte Napoleone in Milan or Bond Street in London (where retailers compete for a small handful of available units) or rebased mass-market-oriented locations, such as Manchester, Glasgow and Dublin.
- Grocery-anchored retail centres should continue to outperform competitors with their ability to draw shoppers, increase foot traffic and boost occupancy rates.
- Retail within mixed-use developments generates rent premiums relative to similar standalone uses.
- In Europe, locations with both local retail spending and tourism concentration (also known as “Dual Driver Markets”) stand out relative to peers. Among the top 20 markets for total nights spent in hotels in 2024 (out of 242 analyzed), several important High Street markets (including Rome, Amsterdam, Paris, Barcelona and Milan) are now above or just slightly below pre-COVID totals.
- Constrained supply over recent years means that retail has essentially “right-sized” to meet a new demand reality
- Opportunity is emerging as record-low vacancy rates combine with positive global economic trends including rising wage growth and strong consumer demand
- Multiple retail subtypes have positive rent growth in Europe while also experiencing declines in pricing
- Many investors have thrown out the “good” retail with the “bad” and investors can take advantage of potential mispricing
The proprietary research outlines encouraging signs of strength in retail globally, as the space has evolved in the face of structural change. Key indicators of retail’s potential recovery identified by Hines Research include:
- Right Sizing to a New Demand Reality: Constrained supply over recent years means that retail appears to have “right-sized” to meet a new demand reality, and as e-commerce growth rates have declined, brick-and-mortar retail demand has re-sized.
- Healthy global labour markets have helped to fuel strengthening consumer consumption: Opportunity has emerged as record-low vacancy rates combine with positive global economic trends including rising wage growth and strong consumer demand.
- The potential investment opportunity: Multiple retail subtypes have positive net operating income growth (in the U.S.) and rent growth (in Europe and Asia) while also experiencing declines in pricing.
- Retail’s role in “place-making”: Research suggests that having a grocery anchor matters for open-air retail subtypes in the U.S., including power, neighbourhood and community centres.
- Tourism’s role in retail’s recovery: Regional tourism can support retail activity and consequently retail property fundamentals, aided by phenomena like post-pandemic “revenge” spending.
“Retail has faced headwinds ranging from e-commerce to COVID and the Great Financial Crisis,” said Michael Hudgins, senior managing director of Hines Research. “In our opinion, we’re seeing that winners in this sector have been sorted after years of little new development, and what seems to be a levelling off of e-commerce’s encroachment on brick-and-mortar’s market share.”
