Economic normalisation expected in 2023
2022 was an unusual year from every point of view. The economy has been severely hit with inflation at highest levels since decades, sky-high energy prices and rising interest rates to try to fight running consumer price index.
Economic conditions have suffered throughout the year 2022 in the aftermath of the conflict in Ukraine. While GDP held up well last year, price pressures have reached a high and a recession is looming. As a result, GDP growth is expected to stand around 1 3% in 2023 according to the government statistics service of Luxembourg
Overall, Luxembourg’s economy is expected to continue performing quite well, driven by domestic demand, favorable fiscal policies and a resilient financial sector, outpacing the Eurozone average
The unemployment rate declined these last two years but is expected to increase as from 2023 and to reach 4.8% according to the lastest forecasts released Moody’s. It should remain stable after 2023, around 4.8% to 5% up to 2025
After having peaked in 2022-Q2, headline inflation gradually decelerated in the last two quarters, driven by the slowdown in energy and services price growth, while prices of food and non-energy industrial goods continued to accelerate. The projected further decrease in wholesale energy prices in combination with a package of government measures to support households and businesses in mitigating the impact of elevated energy costs are expected to ease inflationary pressures in 2023. Overall, inflation is set to decrease significantly to 3.2% in 2023 and further to 2.1% in 2024 according to the latest forecasts released by Moody’s.
GDP Growth and unemployment rate Inflation rate
LUXEMBOURG / Retail Q1 2023
Slow start to 2023 after strong year 2022
Only 5,600 sq m of take-up was recorded in Q1 2023, the second decrease in a row for a first quarter of activity. Challenging economic context and high inflation in 2022 probably weighed on retail sales and have delayed impact on the retail letting activity.
However, 19 deals were observed, a level perfectly in line with previous quarters, which indicates a certain resilience of the Luxembourg retail market, compared to other European cities.
Only 3 transactions outside of the Main Streets in Q1 2023
On the 19 transactions observed in Q1, 16 were recorded in the different Main Streets of the country. Next to several transactions in the most famous streets of the city centre such as the 1,780 sq m letting of Uniqlo in the Grand Rue 22 or the Starbucks in the Royal-Hamilius, activity was also observed in Esch-Belval, namely in the Southlane Tower (Avenue du Swing 3-5) and in the brand new Icone building (Porte de France 8-10).
2 deals were observed in the Shopping Centre segment, the letting of Mano in the Belval Plaza and the opening of Moonbo in LCO.
Finally, only one transactions was observed in the Out-of-Town segment so far in 2023, highlighting the lack of available surfaces and projects in this specific segment.
As the year will move forward, we will assist to a rebalancing of the activity between the different segments, though the Main Streets should remain the most active one this year
Consumers’ confidence at its highest since March 2022
Consumers’ confidence continue to recover gradually and even witness a strong rise in March 2023 to reach its highest level since March 2022. Households’ expectations regarding the general economic situation in Luxembourg remain stable whereas those regarding their personal financial situation increased gradually. In the meantime, households’ perceptions regarding their personal financial situation and their intentions in terms of major purchases have picked up. This could potentially benefit to consumers’ retail spending in the coming months.
Take-up by quarter (000s sq m, LHS) and # deals (RHS)
Consumers’ confidence index
LUXEMBOURG / Retail Q1 2023
Food & Beverage operators represent 60% of the deals
The Food & Beverage sector remains the most active this quarter with 11 deals recorded on the 19. Black & White Burger and Pokawa are the first names who let spaces in the Icone project while other operators continue to test new concepts and locations across the country.
Fashion brands recorded 3 transactions and are the second most active this quarter. Uniqlo signed the biggest deal of the quarter with 1,780 sq m let.
Prime rents stable this quarter, increases expected in 2024.
Prime rental levels remained stable since the second part of the year 2022 and witnessed no changes this quarter.
They stand at 145 EUR/sq m/month (compared to 140 EUR in the beginning of the year 2022) in the High Streets segment. According to our latest forecasts and as the economic situation should stabilise in the coming months, prime rental levels are expected to increase next year to reach 148 EUR/sq m/month in the Grand Rue They should also increase in the Avenue de la Gare as the redevelopment of this area comes to an end
In the Shopping Centre segment, no changes were observed since the end of 2021 Prime rents stand at 90 EUR / sq m / month and they should remain stable up to the end of the year. Forecasts show an uptick to 92 EUR in 2024. They should continue to rise gradually the years onwards to reach close to 95 EUR / sq m/month by the end of 2026.
Out-of-Town retail prime rents also remain stable this quarter to reach 23 EUR/sq m/month. Prime rents are expected to rise already before year-end to 24 EUR as competition in this segment remains intense Increase should continue gradually to 28 EUR/sq m/month by the end of 2026 as the pipeline is relatively limited and demand for these locations important, pushing the rental levels on the upward.
Most active retailers typology in 2023 (in # deals)
Prime rents by segment (EUR/sq m/month)
