Cautious optimism for relevant retail

Consumer demand softened in several major retail markets globally during Q1. The broader squeeze on disposable incomes has triggered many consumers to become more cautious in their spending, although pockets of strong retail sales growth remain, notably across the Asia Pacific region. India, the Philippines and Indonesia are among the fastest-growing markets, while retail sales are recovering in Mainland China and Hong Kong after the government lifted most of its Covid-19 measures. The resumption of overseas tourism from China is expected to provide an additional boost to retail spending across Asia Pacific and in many major cities globally.

Following a slow start to the year, retailer demand for quality space strengthened in February and March in a number of major retail markets. Absorption in Q1 was lower but positive in the U.S., leasing was healthy across Asia Pacific, and demand rose in several European cities. Well-capitalized retailers are consolidating their physical store footprints by taking advantage of better space and larger units that have become available across some of the most attractive retail destinations.

Future trends: A growing role in online fulfillment

Short-term: Global retail sales are likely to slow through 2023, with a stronger performance in Asia Pacific and gradual improvement in Europe, while consumption slows in the United States. But consolidation by larger retailers into high-quality locations, limited new development in advanced markets over recent years and a continued consumer focus on convenience and experience should support demand and occupancy in quality, relevant retail space.

Long-term: The cost-of-living crisis and sustainability concerns are placing more emphasis on using physical retail space for the fulfillment and return of online orders. Some local municipalities are looking to reduce emissions and road traffic from courier vans by using more collection points and bike couriers for fulfilling online orders. These services sit well with existing retail places due to their accessibility and proximity to consumers. More retailers are introducing fees for returning online orders via the post, while keeping in-store returns free. Others are aiming to grow their market share by offering more appealing fulfillment and return options through utilizing their existing physical store network.