For professional clients and/or qualified investors only

EuropeanHigh Streets
December 2023

Madrid, Spain, Calle de Alcala and Gran Via

European High StreetsContents
Key takeaways ................................................................................................................................. 3
Drivers of retail ............................................................................................................................... 4
Tourism ..................................................................................................................................... 4	Online and physical retail ......................................................................... 6
Drivers of retail real estate .................................................................................... 10	Occupier market .................................................................................................. 10	Investment market ........................................................................................... 12
Spotlight on luxury ............................................................................................................. 14
Our vision: a Q&A with Ian Kelley, Headof France, Benelux & Southern Europe ............................................ 16

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Columbia Threadneedle Alternatives

Keytakeaways

Retailers continue toconsolidate, focusing on fewer,
but bigger and strategicallylocated, flagship stores.
Income streams for quality
assets are stable, or
stabilising, as prime rents haverebased substantially.
An omni-channel approach is
crucial for retailers with online
now seen as less of a threat asfootfall to physical stores rises
in parallel with a slowdown inonline spend.
The Eurozone economic
recovery has been delayed
to the latter half of 2024 asmonetary tightening filters
down through the economy.
Inflation is past its peak and istrending down but the situation
for households remains
challenging. There are however
signs of improvement.

3

European High Streets

Drivers ofretailTourism: the return
It is said that people have short memories, and this seems to be the case interms of the resumption of travelling in the wake of a pan-regional or global
events such as SARS in 2002/3 and COVID-19 in 2020.
This is good news for the retail sector as tourism is an
important indicator of the health of our international highstreets. Travel, both domestic and international acrossEurope, had been steadily picking up since the dip
experienced in 2009 following the Global Financial Crisis,
although incomparable to the 65% fall seen in 2020 asgovernments around the world locked down their economies“The resurgence of Europe’s luxury
high streets is gathering momentum,
supported by a solid rise in tourist
numbers and spend, whilst in parallel,
the growth in online retail has slowed
and is no longer seen as the intense
threat to physical stores as it once was.”Joanna Tano, Head of Research, Europe

4and confined large swathes of the population to their homes as
they tried to curb the spread of COVID-19.
This was undeniably not good for physical retail. High streets
suffered immensely as units were forced to close their doors foran undefined period, and footfall dwindled to zero. But as history
seems to repeat itself, once economies opened again, travel
rebounded with a speed some thought unimaginable and footfall
numbers to Europe’s high streets followed suit and picked up.
The number of nights spent in tourist accommodation by theend of 2023 are forecast to be back to pre-COVID levels andanticipated to be approximately 12% higher when comparing
2024 to 2019.
Domestic tourists initially led the recovery, but 2023 saw
a tipping point as international tourists in overnight stays
accounted for a higher proportion. This is a trend that we expect
to see continue going forward. The change is boosted by strong
inter-regional demand, travel postponed by the pandemic, US
travellers benefitting from a strong dollar and the re-opening ofChina. The reversal of China’s zero-COVID policy saw Chinese
tourists returning to European high streets sooner than
expected boosting overall spend figures.

Columbia Threadneedle Alternatives
xxxx

102 avenue des Champs-Elysées, Paris

Chart 1 – Overnight visits in paid accommodation in Europe (000s)
Forecast
500,000+12%

400,000
300,000
200,000-65%
100,000
0

2017

2018

International

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

Domestic

Source: Oxford Economics, November 2023

Key takeaway:
Tourist numbers are on the rise and back to pre-pandemic
levels with overnight stays in 2024 expected to beapproximately 12% above 20195

European High Streets

Online and physical retail:working in tandem
Consumers accelerated their online spend during the COVID-19 pandemic,
but there were already signs of rising online spend in the run up to thepandemic as structural global trends continued to play out.
Along with the increase we saw a rising number of headlines on
the disastrous and long-lasting impact that e-commerce would
have on physical real estate and in particular, the retail sector
and high streets. It is fair to say that the actual online numbers
refute this, and forecasts were perhaps over ambitious in termsof the amount of spend that would shift permanently to online.
Online shopping levels did indeed rise dramatically during
the pandemic as the opportunity to visit physical stores waswithdrawn, but since the re-opening of economies, online spend
has seen volumes decline and whilst they are sitting marginallyabove pre-pandemic levels, they are generally still below the
pandemic – see chart 2.

6

Online is no longer seen as the intense threat to physicalstores as it once was. The lines are more blurred, and thehigh street is far from dead. Perhaps a better descriptor isalive and well. As economies reopened consumers voted with
their feet, returning to physical stores, prompting a gradualbut steady decline in online retail spending in most European
countries. In addition, a growing number of pure play brands
are seeing the intrinsic value in physical real estate and are
opening stores, and this shift is likely to continue over the
coming months and years. There is a greater understandingof multichannel retailing and the co-dependencies of online
and store-based retailing at work today. Building an efficientColumbia Threadneedle Alternatives
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71-73 avenue des Champs-Elysées, Paris

Chart 2 – Percentage of online spend (2019 & 2022 actual versus 2022 forecasts from October 2020 and October 2021)
30

25
20
15
10
5

2019 actual

Oct 2020 forecast of 2022

Oct 2021 forecast of 2022

UnitedKingdom

Spain

Portugal

Netherlands

Italy

Ireland

Hungary

Germany

FranceFinlandEurozone

Denmark

Belgium

02022 actual

Source: Property Market Analysis, October 2023

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European High Streets

multichannel operating model should be at the heart of any
retailer’s transition to the ‘new normal’ marketplace.
Bricks and mortar appear to drive higher conversion spending
rates as brands tap into the experience offered by their instore staff who can provide a more personal and customised
service. Consumers can try before they buy, benefitting both theconsumer and the retailer as it reduces the need for returns.
As fulfilment costs rise, historically borne by the retailer, we areseeing more and more retailers introducing return fees for items
being sent back to fulfilment centres whilst offering free returns
to physical stores with the parallel aim of increasing footfall
numbers and encouraging additional purchases whilst in store,
driving higher turnover volumes. The importance of having aquality omni-channel approach where the online and physicalworlds work in tandem to create the best consumer experience
possible is clear.
And this is not just theory. Footfall numbers have increased overthe past twelve months in all the top 205 European high street
locations. And by the end of Q3 2023, footfall levels were back8

to, or above, pre-COVID levels in a significant proportion of
shopping streets in Europe’s capital and strong Tier I cities –as illustrated in chart 3.
Public investment is also playing its part in reinvigoratingcity centres and high streets, making them more attractive
and appealing and thus driving higher levels of footfall. Everylocation is different, and each has its own story to tell. And
here we see more coordinated strategies involving multiple
relevant stakeholders from local authorities, landlords,
tenants, and developers working together to create longlasting regeneration projects. One example is the “Reenchanting” of the Champs Élysées in Paris. In January 2021
the mayor of Paris, Anne Hidalgo, announced a long-awaited
development of the avenue and surrounding area, initiallycosted at €250 million and first unveiled by local community
leaders and businesses in 2019. The plan includes
transforming the 1.9-kilometre avenue into extraordinary
gardens, reducing traffic, and utilising the pavements for more
food and beverage offerings.

Columbia Threadneedle Alternatives

Chart 3 – Footfall figures pre versus post pandemic (in millions)
Avenue des Champs Elysees, Paris

Via Torino, Milan

Andrassy Ut, Budapest

Calle de Serrano, Madrid

Avenida da Liberdade, Lisbon

Grafton Street, Dublin

Kobmagergade, Denmark

Meir, Brussels

Na Prikope, Prague

Schildergasse, Cologne

Via Condotti, Rome

Avinguda del Portal de l' Angel, Barcelona

PC Hoofstraat, Amsterdam

02

Q3 2023

4

6

8

10

12

14

16

18

Q4 2019

Source: CBRE Calibrate, December 2023

Key takeaway:
Online is no longer seen as the intense threat to physicalstores as it once was, the lines are more blurred
9European High Streets

Driversof retailreal estate

Occupier market: rents haverebased enough to stimulate activity
Navigating the retail landscape is not without its challenges for occupiers. High street
activity saw a revival as markets emerged from an almost standstill during the pandemic
as consumers were allowed back onto high streets and into physical stores.
Chart 4 – Prime high street rents (€ per sq.m per year)
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0

Amsterdam
2019

Barcelona
2023 (f)Source: Property Market Analysis, October 2023

10

Brussels2028(f)Copenhagen

Madrid

Milan

Paris

PragueRomeColumbia Threadneedle Alternatives
xxxx

48 rue François 1er, Paris

But inflation has eroded households’ purchasing powerand squeezed retailer margins. Having said that, thoseretailers that are well capitalised have been able to lookbeyond the current market conditions and are best placed
to execute on strategic plans, even if they have been scaled
back. Although, with margins squeezed as rapid inflation
rises took their toll, and despite recent falls, retailers areconscious of where and how to deploy capital. There will be
increased focus on store performance with retailers trying
to maximise the value of their real estate assets.
The pandemic created opportunities for retailers – theavailability of units increased, and rental levels declined.
Some retailers took advantage of this and accelerated theirstrategies to right-size store networks, consolidating into
fewer overall, but with bigger more strategically locatedflagship stores achieving a more sustainable rental base.
This contrasted with having multiple small units, which
could potentially dilute sales. Practically, these larger
spaces allow brands to house their full product range whilst
allowing customers to experience the brand before making
any purchases. Premium and luxury brands were the mostactive occupiers in 2023 while innovative and mass-market
brands continued to open state-of-the-art stores aimed atdelivering an enhanced customer experience.
These post-pandemic opportunities are now almost
absent across many primary European high street markets
as supply comes under renewed downward pressureand demand for quality space on prime, high footfall
streets picks up. Plus, there is increasing evidence thatinternational brands in particular, are agreeing to longer

leases to secure the right unit on the right street. Thissqueezes their competition and facilitates them being
able to strategically dominate certain locations. Rents
have been pushed upwards in parallel with this trend.
But it is not until mid-2024 that positive growth will
likely be more evident with rents now having rebased to,arguably, more sustainable levels. Along with positive
rental growth, retailers are positioning themselves forwhen consumer confidence returns and flows into retailsales. Some retailers have taken the opportunity to pivot
towards onboarding technology to support changing
consumer behaviour throughout the customer journeyfrom beginning to end.

Key takeaway:
Retailer strategies will continue
to focus on securing the rightspace and delivering a customer
experience11European High Streets

Investment market: highstreets have repriced
enough to offer selectopportunities

varied by country. Investors maintained confidence in the core
European markets with Germany, the UK and France accounting
for 78% of activity across the first nine months of 2023.

The first nine months of 2023 recorded aninvestment volume of €120 billion across all
sectors in Europe.
There has also been a rebalancing between sectors – retail was
the second most traded sector in the year to September 2023
after offices with approximately €22.0 billion exchanging hands,
equivalent to a 19% market share. Looking at the retail sector inmore detail, high streets were the second most active segment
across 2023 to Q3 whereby €5.0 billion was invested, equating
to 23% of the retail volume. This was significantly ahead of retailwarehouses accounting for a 19% share. Shopping centres werethe most active sector in 2023 so far, not unsurprisingly given
the typically larger lot sizes compared to high street shops andboosted by an active third quarter.
The hesitancy amongst investors seen during the second halfof 2022 rolled over into 2023 but is expected to ease as 2024
unfolds as the market starts to unlock with inflation falling andgreater clarity on the path of interest rates. While no country
has been immune to the slowdown in investor activity it has

There is some dry powder waiting to be invested when signsof more stability emerge, and higher investment activity should
follow relatively quickly after that, although the speed will be
determined by how much stock is released to the market forsale. While some investors have paused acquisitions until there
is more clarity, parts of the retail sector such as high streets
have already seen significant repricing driven by structural
trends that were in play well before the pandemic. And so, any
outward movement in yields over the next three to six months
will be less severe than for other sectors such as offices orlogistics. This could be particularly evident in logistics where
yields have compressed sharply over the last few years. It is
fair to say that even though consumer confidence in many
economies is at record lows, retail prices have corrected tosuch an extent that much of the bad news is already priced in.
This in turn offers renewed opportunities to investors, someof whom believe that quality retail assets are now attractively
priced and could offer solid returns, but stock selection is key –see chart 6.

Key takeaway:
Retail has already seen significant
repricing with some good quality
assets attractively priced, but stock
selection is key

Chart 5 – European retail investment volumes by asset type
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2007

2008

Other Retail

2009

2011

Supermarkets

Source: Real Capital Analytics (MSCI), Q3 2023

12

2010

2012

2013

2014

Shopping Centers

2015

2016

2017

Retail Warehouses

2018

2019

2020

2021

High Street Shops

2022

2023
to Q3

Columbia Threadneedle Alternatives“The occupiers’ market has been
incredibly resilient this year,
buoyed by the dynamism of majorinternational brands, particularly inthe sportswear and luxury sectors.”
Assia Amore,
European Fund Manager

Chart 6 – Prime high street yields (%)
6.00
5.00
4.00
3.00
2.00
1.00
0
Amsterdam
2019

Barcelona
2023 (f)Brussels

Copenhagen

Madrid

Milan

Paris

PragueRome2028(f)Source: Property Market Analysis, October 2023

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European High Streets

Spotlight on
luxuryThe Renaissance of the luxury retail sector
The luxury retail sector has shown its resilience and strength over the past few years. Retail generally
slowed down in 2020, an inevitable consequence of the COVID-19 pandemic, as global economies
were closed down, and consumers paused for thought.

Chart 7 – Global personal luxury goods market (€ billion)
600

530
500

385

400

345

300

200

167

186

2010

2011

207

212

219

2012

2013

2014

245

244

254

2015

2016

2017

262

290

281
220

100

0

Chinese acceleration

RebootNew normal

2019

Covid - 19 crisis and reboundSource: Source: Bain & Company, www.chanel.com; www.richemont.com; www.lvmh.fr; www.kering.com

14

2018

2020

2021

Renaissance2022

2023(f) 2030(f)Columbia Threadneedle Alternatives

Boulevard de Waterloo 38, Brussels

But the subsequent rebound has been nothing short ofoutstanding with the global personal luxury goods market
growing by 32% in 2021 year-on-year (Bain & Company).
And this is despite current headwinds such as inflationarypressures and the wider economic slowdown, reflected in a
general squeeze on household incomes and subdued GDP
growth. The resilience of the global retail sector is shownin the subsequent 19% year-on-year increase that followedin 2022 with global turnover in the luxury goods market
reaching €345 billion.
There are a several key reasons behind this trend. One isthat the impact of financial crises on consumers with ahigher-than-average purchasing power tends to be more
limited as they have a greater financial buffer. A second
is the growing consumer base expected to expand fromaround 400 million people in 2022 to 500 million by 2030.
Thirdly, companies which trade in luxury goods have spenttime and money successfully developing their omni-channel
platforms in recent years which has helped them to extend
their distribution and reach higher numbers of consumers
globally, boosting sales.
The profitability of some retailers has been slightly erodedby the modernisation of their infrastructure network. Stores
have been right-sized, raw material cost have increased, andemployee wages risen. They have nonetheless benefited
from price inflation, a proportion of which they have passed
on to their consumers, buffering their margins and theoverall increase in the level of sales. The leader of luxury
goods, LVMH, recorded a 23% increase in turnover in 2022
year-on-year. Over the same period Richemont reported a
19% rise, while Kering and Chanel reported increases of
15% and 10% respectively.
The strong performance in 2022 suggests that growth
should stay healthy for the personal luxury goods market
in the medium term. According to Bain & Company, thestrength of the market’s fundamentals, combined with the
emergence of new sources of profit based on technology,
should boost the luxury market turnover to between €530
– €570 billion by 2030. This compares to €345 billion in
2022 and represents an increase of at least 50%. Thatsaid, this growth will not come without challenges, as luxury
companies, historically anchored in high-quality products
and genuine human commitment, must now tackle newchallenges that include consumers increasingly demanding
sustainability considerations are factored in across the
supply chain and technological advances.
Luxury brands are also looking beyond their ‘traditional’
products and are enhancing and expanding their brands
to include hotels and hospitality, offering a lifestyle choice
to their customers. The product allows the brand to getcloser to their target customers whilst the expansion into
hospitality helps them to elevate their brand. For example,
LVMH’s Cheval Blanc Hotels or Christian Louboutin whop
opened their first hotel in 2023 in Melides, Alentejo
in Portugal.

Key takeaway:
The resilience of the global retailsector is shown in the 19% year-onyear increase in 2022 with global
turnover in the luxury goods market
reaching €345 billion.
15

European High Streets

Our vision
A Q&A with Ian Kelley, Head of France,
Benelux & Southern Europe

The Columbia Threadneedle Real
Estate team in Paris manages
approximately €2 billion worth ofhigh street retail across Europe,
consisting of over 50 properties, how do you
see the current environment for high street
retail markets?

Q“On the macroeconomic side, the recovery ofinternational tourism has been a great support.
In most of the cities in which we are invested,
tourism is back to pre-COVID levels. Also, in
these European capitals, markets are deep
with high income local consumers able toacquire luxury and premium products and readyto pay more for what they desire. To give someperspective, the global luxury market isforecast to reach over €530 billion by 2030
– 2.5 times its size in 2020.
On the tenant side, international brands
are ready to pay significant levels of rent for
quality stores with high visibility and footfall.
Despite the COVID impact and the growing
e-commerce market share, the best highstreet retail pitches are recording prime rental
growth, this is notably the case in Paris, Milan,
and Rome. Nowadays, international retailers
are developing less but are more selective,
seeking better and/or bigger stores in thebest locations.”

16

Q

What is your strategy in terms of asset
value creation?

“The key elements of value creation inhigh street retail assets revolve around two main
themes. Firstly, retailers are willing to pay significant
rents for a visible location with high footfall. We work
proactively with retail specialists to achieve tenantrotation that captures market rent increases. Often,
retailers are also open to renegotiating the terms of
their leases to retain their current locations, in thecontext of refurbishing their store for example.
Secondly, the size and format of the stores must be
efficient and determine the sales potential of thebrands. This can also include acquiring adjoining
stores to enlarge the size if it’s too small or dividing
a store if it’s too large. Thus, all our refurbishment
projects have the objective to optimise store layout,
maximise the sales area and adapt, when necessary,
the unit to a wide range of retailers.”
What is your outlook for 2024?

Q “Repricing combined with the potential
easing of financing conditions should see
attractive investment opportunities come to themarket in 2024. Thus, softer pricing combined withthe macro trends supporting rental growth will makethe timing right for both new investments and newleasing deals.”Columbia Threadneedle Alternatives
xxxx

Contributors

Joanna Tano
Head of Research, Europe

Assia Amore
European Fund Manager

Ian Kelley
Head of France, Benelux &Southern Europe

Avenida da Liberdade 108, Lisbon

17

European High Streets

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