Q4 2022 | Retail Marketbeat | Luxembourg

2022, a year that was anything but normal

After two years of ups and downs, marked by the COVID-19 pandemic in 2020 and booming economic activity following the post-crisis rebound in 2021, one might have expected somewhat 2022 to be a regular year. Finally, 2022 was an unusual year from every point of view.

Economic conditions have suffered throughout the year in the aftermath of the conflict in Ukraine. Europe is significantly impacted due to its reliance on energy imports. To fight soaring inflation, the European Central Bank (ECB) have passed successive rate hikes While GDP held up well this year, price pressures have reached a high and a recession is looming. As a result, GDP growth is expected to drop to 1.1% in 2023. However, we anticipate just a little slowdown because Europe has already managed to reduce Russian gas imports without disrupting activity and is expected to gain from the same post-pandemic improvements. Given the lowered prospects of a major recession and sustained inflation, we now anticipate hikes until May, with the ECB interest rates peaking at 3%.

Despite remaining above the ECB targets, inflation slowed in the last quarter of 2022 as the economy faltered. However, annual inflation has been revised upwards to a new threshold of 6.4%. According to the most recent forecasts, running inflation will continue in 2023, and the market could still suffer a mild recession. Inflation level will decelerate to 3.7% in 2023 before broadly closing in on the ECB’s 2% target from 2024.

According to Moody's Analytics' baseline scenario, after two consecutive years of decline, the unemployment rate in Luxembourg is likely to climb again next year to 4.7% due to a mild recession impacting the Luxembourg economy

LUXEMBOURG / Retail Q4 2022

Letting activity at a high level thanks to an exceptional Q4.

More than 40,000 sq m of take-up were recorded on the Luxembourg retail market in Q4, the best quarter since 2019 and the opening of the Auchan Cloche d’Or, despite challenging context. As a result, take-up reached an unexpected 56,000 sq m in 2022, the second best year ever observed.

17 deals were recorded in Q4, a similar figure to the rest of the year. As a result, 67 transactions were concluded in 2022, a level globally in line with the yearly average. Large transactions such as the letting of 24,500 sq m of Bilia Emond (BMW Automotive) or the opening of Grand Frais in Wickrange drive the activity.

At the time being, the current economic and politic climate does not impact the activity on the Luxembourg market which is showing a strong resilience, as it was also observed during previous crises.

Main Streets drive the activity in 2022.

Compared to previous years, activity is increasing in the High Street segment in 2022. Indeed, 37 transactions, representing 55% of the total number of transactions were observed for a total take-up around 8,800 sq m. In Q4, Fashion brands such as the relocation of Zadig & Voltaire (160 sq m in the Rue Philippe II) confirmed the interest of a location in the city centre of Luxembourg. Food & Beverage operators also continue their expansion on the Luxembourg market this quarter.

Activity is also important in the Shopping Centres segment with 6,200 sq m of take-up and 18 deals observed in 2022 This quarter, New Yorker let 1,477 sq m in the Shopping Centre Knauf Schmiede.

Despite being on the decrease in terms of deals (only 12 transactions in 2022 compared to 22 deals in 2021), activity in the Out-of-Town retail segment boomed at the end of the year thanks to the letting of large transactions A high 41,000 sq m of take-up is observed, far above the 15,000 sq m yearly average observed between 2019 and 2021.

Consumers’ confidence on the rebound since October 2022.

Consumers’ confidence began to slightly recover since October, despite remaining at very low level. Since September, households’ expectations regarding the general economic situation in Luxembourg have been revised slightly upwards whereas those regarding their personal financial situation have also 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)

Distribution of the deals by market segment

Consumers’ confidence index

LUXEMBOURG / Retail Q4 2022

Food & Beverage operators closed 26 deals over the year.

The Food & Beverage sector continues its expansion all across Europe as well as in Luxembourg with 26 deals recorded in 2022, namely thanks to Pitaya, Pokawa, KFC, Thanh’s, Shamrock or Kotonias opened.

Premium fashion brands are quite resilient in Luxembourg, namely with new leases from JOTT and Elisabetta Franchi in Q3 and Zadig & Voltaire in Q4 2022.

Food retailers also continue to expand and new brands enter this market, namely Grand Frais which opened 2 different supermarkets in 2022, the latest one being around 3,500 sq m in Wickrange.

Finally, the automotive sector is growing all across Europe. Luxembourg is not an exception with two major transactions in Q4, Bilia-Emond for 24,500 sq m in the Cloche d’Or and Renault for 4,000 sq m in Bertrange.

Prime rents expected to rise in the coming months.

Prime rental levels remained stable in Q4, after the upward movement observed in Q3 2022 in the High Streets and Out-of-Town segments

Inflation is pushing rental levels on the rise for existing leases and as a consequence of important rental increases, retailers could decide to move and sign new leases at market levels, sometimes in buildings offering better environmental performances (to benefit from energy savings).

They stand at 145 EUR/sq m/month (compared to 140 EUR in the beginning of the year) in the High Streets segment. According to our forecasts and despite turmoil, stability is expected to rise gradually as from 2024.

In the Shopping Centre segment, no changes were observed this year. Prime rents stand at 90 EUR / sq m / month and they are expected to increase to 92 EUR in 2023. They should continue to rise gradually the years onwards to reach close to 100 EUR / sq m/month by the end of 2025.

Out-of-Town retail prime rents also increased this quarter to reach 23 EUR/sq m/month (coming from 22 EUR previsou quarter). Prime rents are expected to rise gradually to reach 27 EUR/sq m/month by the end of 2025 as the pipeline is relatively limited and demand for these locations important, pushing the rental levels on the upward.

Most active retailers typology in 2022 (in # deals)

Prime rents by segment (EUR/sq m/month)

MARKETBEAT

LUXEMBOURG / Retail Q4 2022

50 MEUR invested in 2022.

No investment transaction was recorded on the Luxembourg retail market during the second part of the year. As in the rest of Europe, Luxembourg is experiencing longer and more difficult transactions, a growing gap between asking and offering prices, and transaction repricing and/or asset withdrawals from sales because offers have not met expected price levels

Further increases of the prime yields expected in 2023.

To counter inflation in the Eurozone, the European Central Bank has delivered two consecutive rate hikes, totalling 125 bps. A new 50bps increase has been decided begin February and further one is scheduled for March. The pressure on European property values is evident Indeed, prime yields, just like the 10-year bond, are rising across Europe, albeit to a lesser extent.

Prime yields remained relatively stable, though on a 25bps rise in the High Streets and Out of Town Retail has been observed, they respectively stand at 4% and 6%. They are expected to increase further in the High Streets segment to reach 4.40% in 2023. In the Shopping Centre segment, they should rise stronger to stand between 6.50% and 6.70% in 2023 though the absence of comparables make any benchmark very difficult. They are also forecasted to increase by 25 to 40 bps in the Out-of-Town Retail segment to reach a maximum of 6 40% in 2023

However, the rise is expected to be only temporary as slight decrease are forecasted as from 2025 though yields will remain above pre-crisis levels in the different market segments

Retail investment volumes (in MEUR)

Prime yield by segment (in %)

MARKETBEAT

LUXEMBOURG / Retail Q4 2022

Market Statistics

Key Lease Transactions Q4 2022

Key Investment Transactions 2022

Cédric VAN MEERBEECK

Head of Research & Marketing | Belgium & Luxembourg

+32 2 629 02 86 cedric.vanmeerbeeck@cushwake.com

Sébastien BEQUET International Partner | Head of Luxembourg

+352 661 36 47 12 sebastien.bequet@cushwake.com

Marine FETIQUE Associate | Retail Agency Luxembourg

+352 661 799 407 marine.fetique@cushwake.com

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©2022 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources believed to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.

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