Luxury leads the way in European retail recovery, with overall retail spend to improve in 2024

In particular, the international real estate advisor notes that luxury spend in Europe has proved to be more immune to the squeeze on consumer spending seen this year, helped by the resumption in international travel and the excess savings certain consumer segments accrued during the pandemic. This is evidenced in robust year-on-year growth in footfall on key luxury streets in Europe, which is up 8.4% on average.

This strong recovery in luxury spend has also been reflected in rental performance across Europe’s key luxury streets. Across the 16 luxury streets Savills tracks in Europe, average prime rents as of Q3 2023 are only 2% below where they were in Q4 2019, having increased by 1.2% on the pandemic lows seen in late 2021. Notably this strong recovery has been driven by those luxury streets beyond the big luxury capitals of Milan, Paris and London. In these smaller luxury markets, average rents are actually 1% ahead of 2019.  This resilience has been supported by more restrained availability, but also the fact that many of these smaller markets are predominately driven by domestic spend.

While Europe’s luxury streets were the first to recover from the pandemic, the momentum on Europe’s prime mass market streets is also starting to pick up pace. The vacancy rate on these prime mass market streets have compressed by an average of 639bps since their pandemic peak to sit 64bps above where they were in 2019[1]. This squeeze on vacancy is generating upward pressure on rents in some markets, with the prime mass market streets beyond London, Paris and Milan, reporting average growth of 2.2% since 2021. 

Inflationary pressures this year meant consumer confidence, and in turn retail spend, has been under downward pressure as consumers are restricting spend in some areas as their disposable income is squeezed. But, while macro-economic environment has been particularly acute this year, conditions look set to improve. Forecasts for European spend in 2024 points to a rebound with growth of 3.7% in real terms. 

Despite the downward pressure on total retail sales this year, this has not been reflected across all parts of the market. Tightening consumer finances has buoyed discount and convenience-driven retail spend as consumers look to make savings on everyday items and head for cheaper retail options. These evolving consumer trends have also resulted in a prioritisation of leisure and eating out spend, which accounted for 54% of total European retail sales to date this year, unchanged from its 2022 share, with this share to increase to 55% in 2024.

Larry Brennan, Head of European Retail Agency at Savills, comments: “City-centre locations have come back into focus ahead of many out-of-town regional destination shopping centres across Europe. There is an appetite from brands to be in city centres to enhance their visibility to a greater number of customers, taking advantage of the strong resurgance of footfall on Europe’s key shopping streets. As a result we are seeing vacancy on prime high streets across a number of markets fall.”

The potential customer reach that prime high streets can achieve has been key to the recent influx of online brands securing their first physical stores, supported in part by the increase in online customer acquisition costs. 

Despite the pandemic and the shift of retail spend online, investment into retailers and their associated brand industries (apparel, consumer durables, restaurant and leisure) has also been on an upwards trend. Investment in retail companies and brands over the last 18 months has slowed but 2021 was a new three year peak totalling £284bn globally, with retail companies receiving 61% of this investment. 

Marie Hickey, Director in Commercial Research at Savills: “All the major European markets are expected to see retail sales rebound next year. The growth markets of 2023, Ireland, Spain and Portugal, which bucked the wider downward trend seen in Europe this year, will continue to see growth in excess of 2% in 2024. Vacancy will continue to be squeezed on prime high streets, with rental growth to continue, albeit this is likely to be confined to those markets outside of Germany and the Nordics over the next six months. Demand on major high footfall mass market streets will further diversify, with food and beverage and leisure to become more pronounced with new entrants from Asia Pacific targeting flagship opportunities in London, Paris and Milan.”