Shop rents expected to drop up to 15% compared to 2019

Retail recovery will depend on a number of factors, consumer habits and confidence being among them Matic Zorman/archives

Retail recovery will depend on a number of factors, consumer habits and confidence being among them Matic Zorman/archives

There is light at the end of the tunnel for some retailers in Luxembourg--rents are expected to drop 10-15% compared to 2019.

The first lockdown in 2020 had a significant impact on retail revenues. While many shopkeepers pivoted from bricks and mortar to e-commerce, a subsequent change in consumer habits and trailing off of cross-border custom left some retailers in “survival mode”.

“We are expecting rents to fall by around 10 to 15%,” JLL director retail agency Dmitri Collignon said during a press conference on Friday. This could “benefit retailers particularly in the upper town district, given how high rents were prior to the crisis.”

While monthly shopping centre and retail warehouse rents remained stable (€110/msq and €20/msq respectively) new high street rents in Luxembourg rose to €150 per square metre in 2020, up from €130 in 2019. Collignon credited the growth to two exceptional prime rent transactions on Grand Rue: Rolex and Louis Vuitton.

Consumer habits

Collignon reckoned that consumer hesitancy will be a big factor for retailer recovery in 2021, a year in which he said “flexible leases and formats will become increasingly important.”

He did not hide the fact that some businesses would never recover. “There is no doubt there will be closures. However, it is still too early to say on what kind of scale.”

7.4% vacancy rate

The national retail vacancy rate grew to 7.4% in 2020, a trend that the expert said would rise further as businesses review strategies in relation to the economic situation. The highest vacancy rate was recorded in Echternach at 14%, while the lowest was in Capellen (2%)

It was not only bankruptcies that contributed to this phenomenon: international chains reviewed their strategies and decided to close five shops in the capital, of which three were in the train station district.

Not all retailers struggled

Essential stores such as supermarkets and smaller grocery stores generally fared better than other retailers during 2020, gathering much of the revenues lost by restaurants during the two lockdown periods. As a result, Collignon said Luxembourg could expect to see further openings in these kinds of activities in 2021.

Of the key pipeline openings for this year, the most notable are Escape retail and leisure centre in Capellen, the Knauf-Schmiede extension and the redevelopment of Belval Plaza.

Retail investment

There has been limited international or institutional investor activity in retail in recent years, JLL’s director of capital markets Luxembourg Julien Thevenon said, as most retail owners were private or local investors. That said, 2020 was considered exceptional with the sale of Belval Plaza, Walfer Shopping Centers and Sandweiler Retail Park.

“This shows a momentum of optimism,” Thevenon said of the Belval purchase by Firce Capital, a transaction that was completed just weeks before the first lockdown. “50% is rented out […] It wasn’t performing but nevertheless investors saw an opportunity to create value.”

There were no high street retail transactions in Luxembourg in 2020, but Thevenon noted that in other markets prime yields reached 3.75%. Retail warehouse prime yields remained stable at 5.5% and shopping centre prime yields reached 4.75%, in-line with the European trend.