Global retail leasing markets show resilience

Consumer demand across major markets globally is holding up despite retail spending growth softening from the above-average rates seen over the last two years. While conditions differ by market, retail spending in many mature retail markets is likely to pick up in the second half of 2024 and strengthen in 2025, driven by the return of rising real disposable incomes, international tourism and an anticipated increase in economic activity. With a limited supply of space in the best locations, prime rents are expected to gradually edge upwards in many markets over the remainder of the year before broadening further through 2025 in line with strengthening consumer demand.

Retail leasing markets remain active, although limited available supply is holding back demand in some locations. In the U.S., net absorption jumped 53% quarter-over-quarter in Q2, but declining deliveries and construction starts mean that the major challenge in coming months will be for retailers to find quality space in desirable locations. In Europe, leasing continued to rise in the quarter as retailers look beyond the current slowdown in spending. Activity is also expanding, albeit selectively, outside prime destinations with limited available space. Demand also remains healthy across most Asia Pacific markets, as increasing numbers of international visitors contribute to strong foot traffic in many prime urban areas.

Future trends: Competitive tension for quality space strengthening

Short-term: Global retail sales growth is set to accelerate in many major markets through 2025, supported by rising real wages as inflation and interest rates decline, as well as sustained increases in international travel. Key retail categories including fashion, luxury, F&B and entertainment are continuing to expand into more markets to capture diversification benefits as they target destinations with strong fundamentals and look to secure space before anticipated rental increases. Leasing markets are set to remain active, although limited available space in mature markets will hold back absorption levels in prime locations and selectively broaden activity beyond the top locations and gateway cities.

Long-term: The development pipeline of new retail space is still well below historic averages in many markets globally. Limits and competing uses for greenfield sites, an overhang of surplus lower-quality space and increased construction and financing costs are contributing to the slowdown in construction activity. With many retailers focused on opening fewer but bigger and better stores, demand will remain robust for high-quality space in dominant locations. The mismatch between supply and demand will continue, intensifying competitive tension between major brands to secure quality space, and is expected to push rental levels higher for the best locations across mature retail markets.