According to Patrick Delcol, recently named the Head of pan-European retail at BNP Paribas Real Estate, one wonders how the retail industry will react to the growth of new digital uses that open "a new cycle". But what is certain is that digital "gives more power to consumers" and encourages a fresh look at this very dynamic sector.
digital gives more power to consumers and encourages a fresh look at this very dynamic sector.
E-commerce and retail outlets—the new alliance
In Europe, e-commerce continues to increase its share of retail sales, now reaching 9%. Indeed, “many brands are now integrating digital channels into their customer journey”, underlines Patrick Delcol, Head of Pan-European Retail at BNP Paribas Real Estate. “Retail has a tendency to adapt to changing needs.”
“Some retailers blame the digital revolution for causing woe. But for many it actually provides a new way to distinguish oneself from the competition, namely by integrating the two channels (‘phygital’) to satisfy current and future customers. It’s not easy though, they still have to figure out the economics. Let’s face it—some successful brands still have no digital outlet”, explains Patrick Delcol.
Some retailers blame the digital revolution for causing woe. But for many it actually provides a new way to distinguish oneself from the competition, namely by integrating the two channels to satisfy current and future customers.
Retail property—a booming global market
In 2018, the total volume of retail sales rose by +1.5% in the eurozone (source: Oxford Economics). This progression should continue in 2019, and investors are not letting the opportunity slip by. Between October 2017 and September 2018, €56 billion were invested in retail (+1%). The asset class comprises 21% of investments in commercial real estate, arriving in second place behind the service sector and ahead of logistics.
Behind these impressive figures, the situation is more complex. Retail’s transformation has impacted different stores in different ways, depending on their activity, location and distribution model. Consequently, real estate investors have begun to reevaluate their asset portfolios.
Photo : Patrick Delcol
Warehouses win big
In Western Europe, core and core plus investors (those who invest in the best-located buildings) have shown a growing interest in warehouses. Fueled by the explosive rise of e-commerce, warehouses are in greater demand among retailers in need of space to store their rising volumes of merchandise. In 2017, the warehouse market in France reached an all-time high, with 4.1 million m² reserved.
Second wind for outdoor malls
Outlet malls, retail parks and other outdoor shopping centers have also become all the rage. Designed to offer a more appealing experience with a view of nature, these centers now feature an increasing number of clothing stores, hobby shops and restaurants. As a result, since it offers rent and fees up to four times lower than indoor shopping centers, as well as much larger surface areas, this model is winning over more and more brands. Between 2006 and 2017, retail parks captured 17% of total retail investments.
Strong outlook for major downtown areas
In most major cities, “prime” retail corridors continue to attract brands. The situation is more complicated in secondary locations. In some cities with major shopping centers, like Marseille, street-level retail has lagged. The ‘drive piéton’ pick-up service, an omnichannel concept first deployed in Lille that enables customers to buy online and collect their order at a physical pick-up location, meets the needs of an urban and connected population, in line with the expansion of e-commerce.
In Paris, on the other hand, neighborhood shops are on the rise—organic and specialty food shops have seen a sharp increase. Retailers have relied primarily on productivity gains. Given their relatively small size, these stores have maintained a stable profit per square meter.
Mixed results for shopping centers
In Western Europe, the market for shopping centers has reached full saturation. Large shopping centers still appeal to 78% of young Europeans—a higher rate than their parents. However, smaller shopping centers—generally located on the outskirts of cities or selling midrange products—attract fewer shoppers. This explains the declining ‘prime’ rates of return between 4-5.5% in most European countries.
New prospects for midsize cities
Although small shops in many midsize cities (fewer than 100,000 residents) have suffered of late, some downtown areas have stimulated growth by providing a dense public transit network, easy parking, attractive public spaces and street furniture, local events, a balance of retail outlets between downtown and the surrounding area, etc. These cities have rolled out proactive urban policies.
All across Europe, public authorities are seeking ways to curb population decline in midsize inner cities. In France, the government launched “Action cœur de ville” (Heart of the city initiative) in 2018. This comprehensive program aims to revitalize 222 midsize cities and towns over a period of five years. Its estimated budget of over €5 billion will favor the return of investors and shape the future of urban retail across the entire area of France.
“ Retail has entered a new period of transformation to adapt to new consumption habits. The commercial real estate market should remain one of its most important and efficient distribution channels, though it will take some time for the market to adjust its prices and spaces ”
Head of pan-european retail chez BNP Paribas Real Estate
Crédit photo : header ©Pavel Losevsky