Economy and demographics
Main economic indicators show improvement
The Dutch economy is projected to grow slightly by 1.5% in 2015. The modest economic growth projected for 2015 is partly due to increased household consumption and a rise in business investments. The main negative uncertainties relate to events outside the Netherlands. Geopolitical tensions in various places around the world pose a risk to the global economy. Consumer confidence is higher than a year ago, but sentiment is still cautious.
Low inflation continues
Inflation will remain low at 1.0% in 2015. The Dutch Central Planning Bureau (CPB) is also projecting an increase in median purchasing power of 1.5% following four years of decline. Median household purchasing power is set to improve by 0.75% this year.
Randstad ‘winner’ of changing demographics
The number of inhabitants in the Netherlands will continue to grow in the decades ahead. The current 16.8 million people will grow to 17.4 million in 2025 and 17.8 million in 2040. The majority of the growth will be in people above the age of 65. Bouwinvest focuses on Dutch regions with above-average demographic (and economic) growth. The major cities of the Randstad urban conurbation will see relatively higher growth, in line with the urbanisation trend.
Trends and developments in the retail market
Online shopping growing
The turnover of online shopping is growing every year. Total online spending in 2014 came in at approximately € 13.5 billion, representing a growth of 6% compared to 2013. Online turnover now is roughly 10% of total retail turnover. This growth is expected to continue for the foreseeable future. Retail turnover was up 1.0% in 2014 compared to 2013. Prior to the stabilisation and modest growth seen in 2014, retail turnover had been in decline for nearly five years. Retailers that embrace omni-channel strategies create synergy between the digital and physical world.
Polarisation continues
With the risk of (more) vacancy in the market, the focus is on prime quality. Polarisation is expected to continue in the next few years. Regions with below average demographic and economic growth are facing growing vacancy rates. High street retail in big cities remain popular with rents rising in the best locations.
Retail investments focus on high streets in big cities
Investors are focusing on high streets in the large cities and are reluctant to invest outside these cities. The investment market for shopping centres is dominated by overall cautiousness. The emergence of online shopping requires more adaptability from shopping centres than from high street retail. High street retail provides a shopping experience online shopping cannot provide, whereas shopping centres need to add convenience to already easily accessible online platforms.
Implications for retail real estate
High streets in big cities embrace online shopping and offer experience
The increase in online sales will have less of an impact on A1 shopping areas in big cities, led by Amsterdam. These cities have the best demographic and economic outlook, in addition to offering the most ‘shopping experience’. Location is a major factor in adding experience. Opportunities are emerging as online retailers tend to open physical shops.
Large retail units prime shopping streets remain attractive
In recent years, there has been a clear trend towards retailers demanding larger retail units. Major national and international fashion chains in particular are demanding more retail space per outlet. Due to the small amount of space available, demand will continue to be strong, particularly in cities like Amsterdam, Utrecht and Rotterdam.
Consumer convenience drives focused shopping centres
District shopping centres with a focus on daily groceries are also well positioned to thrive in the online environment. The combination of a local meeting place with a complete offering of daily products makes these centres complementary to online shopping. This type of retail real estate remains an attractive long-term investment. Good accessibility and parking facilities are vital.
Implications for the Retail Fund
- Focus on experience and convenience in challenging retail landscape with continuous growth of online sales and moderate economic growth
- Best economic outlook for our assets in the most urbanised areas (Experience)
- Best outlook for our tenants in fashion retail in strongest A1 shopping areas (Experience)
- Continuous focus on improving the quality of district shopping centres, in terms of catchment area, accessibility and supply (Convenience)
- Optimising the tenant mix in district shopping centres that are less sensitive to online sales