Solid leasing demand in major retail destinations

Global Real Estate Perspective November 2023

Footfall and retailer sales have continued to increase in many dominant retail places around the world, supported by the recovery in international travel and softening but still-resilient labor markets. Sentiment improved over the third quarter in many locations across Asia Pacific on the back of higher tourism, which also contributed to a recovery in footfall to pre-pandemic levels in several markets across Europe. Net absorption also remains positive in the U.S. despite vacancy reducing to record lows.

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

Dominant retail cities and spaces have maintained their stronger performance as recovery lags in secondary locations. Financial results have become more mixed among major retailers as consumers continue to be selective in their purchases, with value operators and luxury firms standing out while mid-market retailers face more challenging conditions. 

Future trends: Limited development supporting performance

Outlook for 2024: Global retail sales will stay under pressure as economic growth slows in several major markets through early 2024. But while labor markets are showing some signs of softening, unemployment remains low and falling inflation combined with rising earnings should support real wage growth and a moderate increase in consumption next year. With visitor numbers for urban destinations likely to accelerate next year, the ongoing rebound in travel will maintain retailer sentiment for dominant locations and tourism corridors in Europe and Asia Pacific.

Long-term: Construction of new retail space in many markets is below historic levels, and with demand still relatively high, expanding retailers are finding it harder to get the spaces they are looking for in desirable areas. This lack of supply will likely support competitive rental tension for prime locations that meet the demands of experiential, F&B and luxury tenants. Performance in secondary locations will continue to lag the recovery in dominant destinations.