RETAIL

Keypoints

  • In September 2024, 28 Dutch retail companies went bankrupt, reducing labor market tightness and freeing up workers for viable companies
  • Despite the bankruptcies, consumer spending remains strong, with a 1.8 percent increase in retail sales and improved consumer confidence
  • The Dutch retail market presents a mixed but positive picture, with online layers benefiting from e-commerce and traditional stores adapting
  • Investment volumes in the retail market remain low, but there are signs of recovery in 2024, with growing interest in prime locations and stabilization of returns.

Economy and consumer

In September 2024, 28 companies in the Dutch retail sector went bankrupt, an increase of three bankruptcies compared to August. This number fits within the year's trend, where an average of 20 to 30 retailers went bankrupt each month, with the exception of July, which saw 57 bankruptcies. While business failures are never a desirable scenario, they can also be seen as necessary. During the pandemic, labor market tightness increased significantly because so few companies went bankrupt. With the recent rise in bankruptcies, this tightness is gradually starting to ease. The increase in bankruptcies can have positive effects on the economy. Workers from non-viable companies become available again in the labor market. For companies that are viable, it is essential that these workers become available.

Despite the rising number of bankruptcies, consumer spending remains surprisingly strong. In August 2024, households spent 0.7 percent more than in the same month of the previous year, especially on clothing, home furnishings, and electrical appliances. Retail sales grew by 1.8 percent, with a strong increase of 3.6 percent in the non-food sector. The food sector, however, saw a decline in sales of 1.2 percent, with supermarkets generating 2.6 percent less revenue, likely due to the tobacco ban.

Online retail also posted strong figures, with a 5.7 percent revenue growth in August, mainly driven by 'pure players,' who saw their revenue increase by 10.8 percent. Notably, stores where online sales are a secondary activity saw their revenue decrease by 1.3 percent compared to a year earlier.

RETAIL SALES DEVELOPMENT (% CHANGE, YEAR-ON-YEAR)

Source: CBS (2024), edited by Achmea Real Estate

In September, consumers were less negative about the economic climate than in August. The sub-indicator for the economic climate improved from -24 to -21. Both the assessment of the past twelve months and the outlook for the next twelve months were more positive. The willingness to make purchases also increased, from -31 in August to -21 in September. Consumers rated their financial situation over the past twelve months as less negative and expected an improved financial situation in the coming twelve months. Moreover, they found the timing for major purchases to be less unfavorable than in August. This improvement in attitude seems to stem from increased confidence in the economy and a more positive outlook on their own financial situation, indicating a cautious recovery.

The user market shows resilience

The Dutch retail market has shown a mixed picture over the past three months. Online players such as Zalando are benefiting from the growth in online shopping, while Coolblue remains successful thanks to its customer-focused approach and strong omnichannel strategy. Decathlon is experiencing increasing demand for sporting goods, partly due to the focus on health and outdoor sports. These chains are responding well to changing consumer trends and have been able to retain their customers.

The current shifts in the market show that companies that adapt flexibly to new consumer needs are performing better. Retailers that invest in a strong in-store experience and customer service are generally more successful. Physical stores that focus on experience and product interaction are popular, especially in strategic locations with space for testing facilities.

Traditional chains in city centers are struggling to attract consumers, particularly due to the decline in foot traffic in these areas. Shopping streets are seeing fewer visitors due to the rise in online shopping and the preference for shopping centers with good accessibility and a wide range of offerings. Stores in prime locations that focus on experience and convenience remain successful, while retailers in less popular areas are under pressure due to the shift toward online shopping and more targeted store visits.

DEVELOPMENT OF ONLINE RETAIL SALES (% CHANGE, YEAR-ON-YEAR)

Source: CBS (2024), edited by Achmea Real Estate

DEVELOPMENT VACANCY (BY TYPE OF SHOPPING AREA)

Source: Locatus (2024), edited by Achmea Real Estate

In the past quarter, retail vacancy rates in the Netherlands increased from 6.43 percent to 6.55 percent. This rise is mainly observed in large and small city centers. Small neighborhood centers and district centers both experienced stable or even declining vacancy rates compared to the previous quarter. Deeper analysis reveals that this vacancy increase is most significant in Large – Medium Highstreets, primarily in type-C locations. These are low-urban areas with less traffic, where local consumers rely on a regular customer base. In higher urbanized areas within the XL Highstreets, vacancy rates increased by an average of 10 to 35 basis points compared to the previous quarter. The main contributors to the overall vacancy rate are hairdressers, restaurants, and women's fashion stores.

Despite the gradual return of vacancy rates, prime rents in various retail locations remain almost stable. Both quarter-on-quarter and year-on-year, there have been few developments in prime market rents. In the past quarter, the only notable decline was in the Grote Straat in Maastricht, where prime rents fell from €1,050/m²/year to €1,000/m²/year. On the other hand, Amstelveen Stadshart saw a sharp increase, both quarter-on-quarter and year-on-year, with a market rent currently at €950/m²/year, compared to €850/m²/year a year ago. However, in the past quarter,820 retail units were leased to new tenants, 44 fewer than in the previous quarter (Locatus, 2024). This indicates that turnover, and thus rental transactions, have slightly decreased.

DEVELOPMENT OF RENT LEVELS PER CLUSTERING OF CITIES (€/M2/YEAR)

Source: C&W (2024), edited by Achmea Real Estate

Large investment volumes remain absent, despite stable market conditions

In 2023, there was a significant decline in investment volumes in the Dutch retail market, totaling only €800 million. In the first quarter of 2023, the lowest investment since 2014 was recorded at just €40 million. This can be attributed to increasing economic uncertainty, high inflation, and rising interest rates, which discouraged investors. Additionally, the shift toward online shopping has reduced the attractiveness of traditional retail real estate. These factors have led to a cautious approach to investments in retail real estate, with a wait-and-see attitude among investors.

In 2024, the Dutch retail market presents a mixed picture regarding investment volumes. The first quarter saw a significant increase to €390 million, indicating a recovery from the historically low investments in 2023. However, the second quarter showed a decline to €170 million, and the third quarter currently stands at just €20 million. These fluctuations suggest that investors are still hesitant, possibly due to economic uncertainty. The final figures for the fourth quarter will be crucial in determining whether 2024 can truly be considered a recovery year for retail investments. Despite the low volume in the current quarter, the year-to-date investment volume is already at the same level as the entire year of 2023. Moreover, history shows that most deals take place in the last quarter of the year.

When looking at the rest of the retail investment market, the prime initial yields show signs of stability. After years and quarters of rising initial yields, the market now appears to be moving toward equilibrium. Apart from P.C. Hooftstraat, all main streets in the G4-Highstreets XL have experienced a slight correction of 5 basis points in the initial yield. Other regions show stable figures with a slight increase of up to 5 basis points. If the rental and vacancy figures do not develop negatively further, the current valuations seem to provide enough stability for investors to step in.

SHOPPING CENTER WESTERKOOG - KOOG AAN DE ZAAN

Source: Achmea Real Estate

Outlook

The investor market in the retail sector is characterized by low investment volumes, high yield demands, and selective interest, with volumes significantly below the long-term average. Nonetheless, the market shows signs of recovery in the first half of 2024. The outlook for the remainder of the year is positive, thanks to increasing consumer confidence, stabilizing interest rates, and reduced uncertainty regarding rental price developments following the significant declines of recent years. The prices of retail properties have undergone strong corrections, and it seems that the bottom of the initial yields is in sight.

There is growing interest in retail real estate, with investors primarily focused on core investments in prime locations and shopping centers. Looking ahead, it is expected that institutional investors will play a more significant role in the second half of the year. The Dutch retail market has been experiencing fragmentation for some time, with gross initial yields for regular medium-sized shopping centers and secondary locations ranging between 9.0% and 12.0% in the first half of 2024, with no further increase. Traditional investment categories such as supermarkets have indicative gross initial yields of 4.8 percent to 6.5 percent, with supermarkets in neighborhood shopping centers ranging between 5.5 percent and 7.0 percent. For high-quality shopping centers, a yield of 6.0 percent to 7.0 percent is expected in the second half of 2024, while subprime locations can offer up to 8.5 percent. High street retail locations in prime areas show yields between 4.0 percent and 7.25 percent.

Given the signs of recovery and the growing consumer confidence, the retail investment market is expected to stabilize further. The increased involvement of institutional investors and the ongoing interest in high-quality retail real estate may lead to a further revival in the sector. However, investors will remain cautious, taking into account the existing fragmentation and the varying yield requirements across different segments of the retail market.

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