Retail real estate in Europe–during the days of Corona and beyond

By Jörg Bitzer

One of the challenges that the current Corona crisis enforces upon us is the fact that it is yet totally unpredictable. The only “knowledge“ we do have so far, is that China`s hotspot Wuhan, having been quarantined since the beginning of January, is still (middle of March) encountering (fewer, but still) new cases every day. In Europe, starting from the southernmost countries like especially Italy and Spain, the disease has just begun to spread all over the continent as of today. More and more countries are shutting down completely, in almost all cases including all of their non-essential retail businesses. With the exception of supermarkets, drugstores, and pharmacies, retail tenants being closed down around the continent are faced with continued substantial costly burdens such as HR-expenses, but even more so rents, cam-charges, and other real estate related cost.

It is very clear that all those being shut down will only be able to bear these substantial financial challenges for a very limited period of time. The German Retail Association has calculated that German retailers (beyond the food sector) are losing about 1.15 billion € worth of sales every day (!). The vast majority of these turnovers will never be recovered, even if stores were to open again soon. However, the German city of Stuttgart has announced–evidently in line with the experience from Wuhan–that the shutdown is preliminarily scheduled until June 15, 2020. Other predictions already foresee closures all throughout Europe for several months.

Many of those retailers that had still been on the road of expansion in the difficult environment for retail in the past months have made it very clear now that, at the very least, they are putting their expansion plans on ice for the time being. New demand for retail space is thus virtually non-existing. Many entrepreneurs from the gastronomy and leisure industry–in many cases young entrepreneurs with very limited equity opportunities–have already laid off their staff completely, and this will continue. The same is true for non-chain, small, and mid-size retail operators, who have not only closed their stores, but have also run down their total operations into a virtual standstill. Finally– partially due to all of the above–unemployment is factually exploding. In Austria, for example, more than 16.000 people applied for unemployment support on the first day of the enforced store closures. This is the highest number ever seen on a single day in Austria since World War II.

With all of this in mind, the following conclusions for the retail real estate market seem likely:

• Unpredictability: Uncertainty is immense at this moment. However, it is clear that the longer the standstill will take, the more severe the consequences for retail and therefore also retail real estate will become.
• Demand: Tenants’ demand for non-food retail real estate is virtually at zero-level. The longer the situation will continue, the more the entire economic demand will deteriorate and thus reduce the interest and the ability to lease retail real estate further.

• Market: We will clearly see a tremendous number of insolvencies (not only in the non-food retail sector) followed by store closures and vacancies all throughout Europe. Thus a few weeks from today, our retail real estate world will surely not be the same anymore. High street and shopping malls will look dramatically different from today. It will clearly take months to find a new equilibrium for markets around the continent, once the crisis is over.
• Future–every crisis always offers opportunities: Online retail, especially in the more developed countries and in those sectors that supply day-to-day goods, will clearly see a positive breakthrough (in the USA, Amazon has already announced to employ an additional 100,000 people over the next few weeks). In many cases, online retail will be on the winner’s side.  This may also come true for pure online players who will find their chances to start new distribution channels throughout the disturbed markets. Brick & mortar retailers who survive the crisis will find massive real estate opportunities throughout the markets, too. 

It is clear for all of them that fast movers will be on the winners’ side, once this crisis ends.