Mitigated economic outlook in 2023 but a more robust 2024 awaited
After a challenging year in 2022, economic recovery will be modest in 2023, with GDP growth predicted to be about 1.4% for the whole year, above the EU level. The Luxembourg outlook is therefore tempered, whereas stronger GDP growth is predicted in 2024 and in 2025. GDP growth is expected to be approximatively 2.3% in 2024 and 1.7% in 2025.
According to the most recent projections, the unemployment rate should reach 4.9% this year. The different industries are performing differently Indeed, while employment growth is expected to be 2 5% in the public sector, the banking and financial sector should see growth of almost 3.5% in Luxembourg this year. Over the coming years, the unemployment rate is expected to remain stable at 4 85%
After reaching an all-time high last year, inflation in Europe and Luxembourg is gradually declining. It is now 3.6% in Luxembourg (as of May), compared to 6.1% throughout the Eurozone. Despite the drop in energy costs, inflation remains much above the European Central Bank’s 2% target, owing mostly to high food price inflation To combat inflation, the ECB tightened its European monetary policy through repeated interest rate hikes. In this context, the 400-basis point gain over the previous eleven months is extraordinary. As a result, the pace of economic growth is slowing. However, in order to meet its 2024 target, the ECB needs hike interest rates by 25 basis point in July.
GDP Growth and unemployment rate Inflation rate
LUXEMBOURG / Retail Q2 2023
Robust Q2 brings 2023 take-up to average levels
Around 5,800 sq m of take-up was recorded during the second quarter of the year, bringing the total of 2023 to 11,400 sq m. This level is globally in line with previous years and confirms the resilience of the Luxembourg economy and Luxembourg retail market despite a turbulent market environment.
21 deals were recorded this quarter, a new increase compared to Q1. As a result, a total of 40 transactions is witnessed so far this year, a level above same period during the previous years.
Remarkable activity in the Main Streets segment
On the 40 transactions observed during H1, 24 were recorded in the different Main Streets of the country. A new transaction has been recorded in the Royal-Hamilius which continues to fill in, while other small transactions were observed in the city centre. The total take-up in this segment stands around 6,740 s qm so far in 2023, above previous years’ average.
The Shopping Centre segment witnessed a strong rebound this quarter with 7 transactions recorded, compared to 2 deals in Q1 2023. Kiko Milano for example opened 2 new stores, in Auchan Cloche d’Or and Auchan Kirchberg. So far this year, take-up is around 1,270 sq m, highlighting small lot-size transactions
Finally, activity is relatively subdued in the Out-of-Town segment so far in 2023, with only 3,370 sq m of take-up and 7 transactions This reveals the the lack of available surfaces and projects in this specific segment rather than downward trends.
Consumers’ confidence on a positive path this quarter
Consumers’ confidence continue to recover gradually since March 2022. All the components of the index evolved positively this quarter as households’ expectations regarding the general economic situation in Luxembourg have been revised very significantly upwards whereas those regarding their personal financial situation remain more stable In the meantime, their intentions in terms of major purchases have registered another considerable increase. This could potentially benefit to consumers’ retail spending in the coming months.
LUXEMBOURG / Retail Q2 2023
Food & Beverage continue to be the most active typology
6 new transactions were observed in the Food & Beverage sector in Q2, bringing the total to the year to 17 (41% of the total number of deals). As such, F&B operators continue to drive the activity on the retail market. The letting of Nespresso in the Grand-Rue is probably the most famous this quarter though local operators continue to open new concepts and restaurants in the country
Prime rents increased in the Out-of-Town retail in Q2
Prime rental level are stable in evey market segment since July 2022.
They stand at 145 EUR/sq m/month 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 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 and as new urban developments will reinforce the attractivity of this area. A gradual increase is awaited up to the end of 2026.
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 witnessed a slight prime rents increase this quarter to reach 24 EUR/sq m/month (compared to 23 EUR previous quarter) as competition remains intense in this segment. 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)
