Mixed performance across global retail markets

Consumer demand has become more mixed across major retail markets, with global consumer spending set to fall from 3.2% last year to 2.3% as the impacts of higher inflation, interest rate hikes and weaker economic growth dampen demand. But this will still mark a fourth successive year of spending growth, while international tourism continues to act as a tailwind in popular visitor destinations. Conditions are expected to improve in the second half of 2024 and into 2025, supported by real disposable income growth as inflation and interest rates decrease.

Regional leasing activity diverged during the first quarter. In the U.S. there was a notable slowdown in new store acquisitions, with a lack of available supply causing a pullback in net absorption despite continued strong demand from retailers. Meanwhile, robust momentum in leasing activity across Europe’s key retail markets carried over into Q1. More retailers have broadened their focus from primary markets to include the best space in Europe’s regional cities. Retailers also remain active across Asia Pacific and are focused on the strongest growing markets, targeting gateway cities in India, the thriving Southeast Asian markets and Japan.

Future trends: Brands relying on physical space to offer differentiated experiences

Short-term: Consumer spending is set to increase for a fourth successive year in 2024 despite muted economic growth. North American leasing markets will remain active, with demand driven in particular by restaurants and discount stores, although finding available space in quality locations will be a challenge and limit absorption. In Europe, demand is broadening but retailers will also face difficulty finding space in primary markets. And in Asia Pacific healthy activity will continue across growth markets. Rental increases remain limited but are expected to broaden in supply-constrained and growth markets into 2025 in line with consumer demand. 

Long-term: Many major retailers are doubling down on physical stores as they continue to gain more clarity on the value of physical retail space to their business model. For luxury retailers, physical stores provide more options to offer a high-end client experience and protect the pricing of their products. The largest luxury retail groups are currently buying prime high street units across major cities globally. Sporting goods retailers are looking to upgrade their existing stores and grow their retail footprint in the coming years, as they believe the market will see significant growth in countries with aging populations and that more consumers are willing to buy their products if they can test them or ask for advice. Experiential retailers including food and beverage operators and entertainment groups also remain key sources of expansion demand.