According to the new Forcadell Retail Market Report, in 2017 the digital disruption have consolidated trends which have boosted change in consumer habits in the retail sector since 2016.
There is still a low level of supply for retail premises to rent in Barcelona, especially in the 1st and 2nd Lines, a fact which has reactivated the 3rd Line.
The consolidation of e-commerce, the surge of flagships, the expansion plans of firms, increased family spending and the dynamic local neighbourhood trade segment has opened up for a strengthened Retail sector, with positive growth prospects, new formats, renewed demand great projection in all levels.
Retail in Barcelona has closed 2017 reaffirming the consolidation trend of the past 2 years. Retail in Barcelona has closed the 2017 financial year confirming the consolidated trend of these past 2 years. The favourable economic perspectives, revitalizing of job creation and rising of commercial tourism, together with a dynamic Small Business sector have reflected in an increase in demand for retail premises, in quality as well as in quantity of requests. Specifically, there has been a 14% inter-semestral increase in rent demand, while in sale demand it has been of 9%. This was concluded by the Consumer Confidence Index (CCI), which was positioned in 102 points in December, 2 points higher respect the same month in 2016. It is worth noting that despite this increase in the course of H2 2017, the CCI registered a decline in September and October, a period in which a certain caution was noted by the retail demand. In 2017, the trends of digital disruption and the impact in those changes in consumer habits have been working on in the retail sector since 2016. As Forcadell forecasted in previous market reports, the flagship format has changed the store concept and has become a powerful creation tool for brand marketing. Companies expand their presence through large department stores and Barcelona is one of the favourite destinations to locate these establishments.
And businesses are increasingly giving more priority to location: brands that were placed initially in industrial parks -Decathlon, Ikea or Fnac- are now competing to be located in large surface spaces in the centre of urban cores. By sectors, Restaurants and bars have been the most demanded segment this semester and remains as the fastest growing sector. The large fashion operators have made a firm commitment to the flagship format and some of them are also innovating with showroom openings: establishments with a few samples of their product in which the client places their order on line. In the food & beverages sector, the small business and proximity stores are experiencing a surge, while there is an increase in demand for commercial premises destined for leisure activities such as banquet halls, escape rooms, or spaces to play laser tag among others.
In sales, it is noted that most applicants are investors, but there has been an increase in demand from end consumers, while in Prime, there is a pronounced intent to buy.
The fact that supply for commercial premises to lease is still very low mainly in the 1st and 2nd Lines has reactivated the 3rd Line. The commercial premises to rent market in Barcelona has to answer to a high number of demand from international operators who wish to introduce themselves into the Spanish market, and choose to do so through the Catalan capital, as well as a large volume of local companies and small businesses. This thriving demand has made it difficult to find spaces in Prime, especially in the main commercial streets, where lack of space has made companies who want to grow opt for less centric locations or choose different or smaller formats. This is the case of Gyms, which increasingly choose to specialise in one field or area of fitness, or Supermarkets, which have opted for Small Business Local trade.
The good performance of the sector and the lack of spaces keep driving the rents upward in almost all the Lines, although more moderately than in H1 2017. The inter-semestral increases have not exceeded 3% in the 1st and 2nd Lines, while the 3rd and 4th Lines have not registered increases. Portal de l’Àngel still heads the list of the commercial streets in Spain with the highest rents (€280/sqm/month) followed by Preciados in Madrid (€270/sqm/month) and Passeig de Gràcia (€255/sqm/month).
Supply for commercial premises for sale was still low along the 2nd semester of 2017 due to interest of investors and end consumers. Owners of commercial premises in Prime locations opt to maintain their real estate assets and capitalize their premises through rents awaiting for the market evolution, which forecasts an increase in prices, in sale as well as in rents. Just as in the rent market, low availability of premises for sale in the 1st and 2nd Lines has caused a reactivation of the 3rd Line, reducing considerably the waiting period of non-occupancy throughout 2017. Low availability of retail premises in the first Lines has induced sales and purchases in the H2 2017 to translate into higher end prices than anticipated.
Just as in the first semester of 2017 prices for commercial premises in street front premises had risen considerably, in the second semester this growth has been more moderate and uniform. Inter-semestral increases in all Lines was 2-3%, excepting for the 3rd Line which registered an increase of less than 0, 5%.It is expected that in the next 2 financial years there will be a reactivation of the 3rd Line which will translate into a raise in prices in rent as well as in sale.
Retail in Spain is currently experiencing a surge, and the main market players are investing strongly in the sector. In 2017, this was the sector that attracted the greatest volume of investment (in the range of €4.000m). Throughout the second half of the year, it is international funds and REITs that are specializing in the sector. Yields are lowering while investment pressure keeps intensifying. Along 2017, there has been a boom of private foreign investors that have started out their investment plans in the Catalan capital attracted by the Golden Visa opportunity: a resort to attract capital to Spain in exchange for a residence or stay permit.
Among the types of transactions, underline the opening of the Uniqlo flagship (1.800 sqm) in Passeig the Gràcia, the first store of the Japanese firm in Barcelona. In the same promenade, which is becoming the main street for flagships, Adolfo Dominguez will open a large store (682 sqm). Also in H2 2017, the french lingerie brand Etam has opened a 500 sqm store in Rambla de Catalunya. Following the trend of large formatbrand stores near the big cities centres, Leroy Merlin is getting ready for the opening in the 1st quarter of 2018 of a large store (2.450 sqm) in calle Fontanella, a few meters away from Plaça Catalunya.
Street front commercial premises together with Shopping centres are increasingly consolidating as products of interest for investors. While In the United States shopping malls have been experiencing a chronic decline, in Spain this commercial format remains popular and keeps expanding. Four centres have opened in the second half of the year in Spain, one of them in the Barcelona region: Terrassa Plaça. Investors are increasingly opting for the management and refurbishing of these type of assets, redefining their concept and transforming them into spaces that combine leisure and shopping. Rents in retail premises sustain their upward trend while yields in Prime stand at 3%-4,3%.Industrial parks have higher yields and achieve a longer growth path. The surge of flagships, the expansion plans of big firms, the increase of family spending and the drive of neighbourhood local stores together with the consolidation of e-commerce results in a strengthened retail sector with great projection.
The retail sector is experiencing a cycle of economic expansion since 2015. Forecast for development in the coming year is solid and involves the trends of digital disruption and its impact in consumer habits, together with the structure, format and activities of local Small Businesses. For 2018, this economic expansion cycle is expected to continue, with slight increases in Prime rents and stability in yields.