Health & Beauty to Lead Retail Space Requirements Over Next Five Years
Key Retail markets to witness further growth in physical space requirements
London, 14 November 2018 – Retailer demand for physical store space will remain steadfast throughout a number of key retail markets over the next five years, with the Health and Beauty sector leading the way in driving future growth requirements according to global real estate advisor CBRE.
The new analysis examines six major retail markets; China, America, Spain, Germany, Italy and the U.K and focuses on projected retail space requirements over the next five years within the key sectors of Grocery, Apparel and Footwear, Health and Beauty, and Home and Garden.
CBRE predicts that growth in Health and Beauty space requirements will outpace other sectors with China to witness 8.1% growth, followed by Germany (4.5%), Italy (4.2%), the U.K (1.7%), U.S (1.6%), and Spain (1.1%). Growth across this sector will continue to be fuelled by technology and innovation paired with a rising demand from consumers who are investing in themselves.
Natasha Patel, Director, Global Retail Research, CBRE, comments: “Technology, innovation and social media have been key to the Health and Beauty sector’s success and will remain an integral part of its strategy in the years ahead. We’re seeing brands introduce virtual make up screens, allowing consumers to visualise what products look like before committing to a purchase, and creating an experience that draws consumers into the physical store. The sector has seen brands create a joined-up omnichannel approach with their social media networks and physical store, so much so that there is evidence of brands using analytics of their social media profiles to drive their store leasing strategy.”
The data predicts the Home and Garden sector will witness significant levels of growth in space requirements – in China an extra 20.4% of space will be required, followed by Spain (2.3%), Italy (1.2%) and Germany (0.8%). The Apparel and Footwear and Grocery categories are also expected to see steady growth across many markets – in Europe, Spain leads in both categories with a 2.2% and 1.2% rise in space requirements respectively.
David Close, Head of EMEA Occupier transactions at CBRE said: “Grocery, Health and Beauty, Apparel and Footwear, and the Home and Garden sectors have a real opportunity to redefine bricks and mortar retail, and we expect to see steady demand for retail space in many markets for each of these sectors.
“Although the retail sector is in a transformational stage, the physical store will remain a vital driver of customer acquisition, retention and revenue. Our research demonstrates that despite an increase in online sales, consumers prefer the omnichannel retail experience, and will continue to use the store as a critical part of inspiration, education, testing, and engagement.”
To get a better idea of the implications of forecast sales on real estate demand, we have analysed how store sales density has interacted with trends over time (greater efficiency) and store-based sales growth (the cyclical impact). Once we have a view on future sales densities, future space demand drops out as being equal to sales (based on Euromonitor forecasts) divided by densities (from the CBRE model). Over time, we expect that sales densities will increase (i.e. stores will become more efficient) but periods of falling retail sales will decreases densities in the first instance as the amount of store space is sticky in the short-term and vice-versa.
To put this into practice a simple relationship was estimated using 15 years of historic data to establish the link between sales densities, retail sales growth and a time trend. The forecast increase in the demand for store space will, therefore, move in the longer-term line with the growth of sales – at best (if the time trend does not have an effect/if there is no efficiency effect), in this scenario of growing sales, space requirements are more likely to grow more slowly than sales as efficiency increases.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2017 revenue). The company has more than 80,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.
CBRE U.C., (CBRE Ireland) registered in Ireland, no. 316570. PSRA Licence No. 001528 is the country’s largest commercial real estate services company with offices in Dublin and Cork. Currently employing over 150 employees, we work with occupiers, investors and developers of office, industrial and logistics, retail, hotel and healthcare property, providing strategic advice and execution for property sales and leasing; tenant representation, corporate services; property and project management; appraisal and valuation; development services; investment management and debt advisory; business rates and compulsory purchase and research and consulting. Please visit our website at www.cbre.ie