Major leasing markets remain active, although signs of caution emerge

Global Real Estate Perspective August 2022

The retail sales growth outlook continues to soften across major markets globally as economic headwinds gather pace. Many international retailers are preparing themselves by strengthening their balance sheets and implementing measures to limit a potential hit on profit margins. At the same time, a variety of major retailers are continuing to look through the current disruption and search for long-term growth opportunities by entering new markets or securing high-quality retail space.

This article is part of JLL’s Global Real Estate Perspective

Inflation concerns have become more prominent in many markets, affecting real disposable income levels and consumer confidence. This is particularly the case for households with smaller budgets. In addition, supply chains continue to feel the pressure of delays and rising transportation costs, while labor shortages are triggering retailers to operate more flexibly in terms of day-to-day operations and opening hours.

Despite the uncertain outlook, leasing activity remains robust in many larger and more mature retail markets globally. Retailers, who are targeting domestic consumers, continue to push ahead with new store openings and the introduction of new store concepts. However, as retailers assess the current situation, some have paused stores acquisition processes or are optimizing their physical store footprint. Retail rents in the U.S. have maintained their upward trajectory fueled by solid demand, while prime rental growth is also starting to emerge across Europe.

Future trends: An increased focus on sustainability solutions

Short-term: The retail sales outlook continues to soften as inflation, supply chain pressures and labor shortages impact consumer confidence and disposable incomes. Demand for higher-quality space in mature retail markets is being supported by continued easing of Covid restrictions, rebounding tourism and the build-up of savings. However, rising costs from goods inflation, higher energy bills and service charges is leading to a focus on managing operational costs and will limit additional rental growth through the year.

Long-term: More major retailers have announced plans to reduce their emissions and impact on the environment globally. With new legislation and institutional investors more focused on sustainability, discussions between landlords and retailers are picking up. These typically focus on solutions to reduce energy consumption and create mutual financial benefit, while retailers are also exploring how they can improve their store fit-outs. While it is encouraging to see more sustainability commitments, the retail industry still needs to make significant progress to meet tightening regulations