Retailers search for profitable growth

Global Real Estate Perspective May 2022

Retailer expectations in many countries were upbeat at the start of 2022, but the short-term retail sales growth outlook has softened in recent months due to operational challenges, inflation and weaker consumer sentiment in some markets. COVID continues to disrupt daily life, with people in Hong Kong, Shanghai and other Chinese cities going through a period of tightened measures. Other countries in Asia and Europe are loosening and ending containment restrictions.

This article is part of JLL’s Global Real Estate Perspective

Global supply chain disruptions are having an impact on financial performance for many retailers globally due to lost sales and rising costs for energy, transportation and manufacturing. Inflation is also taking its toll on retail spending as consumers face a significant squeeze on disposable incomes. The general shortage of workers in the U.S. and other countries is being felt by retailers and food and beverage operators, who are becoming more cautious with opening new stores and operating their store portfolios.

Despite the uncertain outlook, leasing activity remains robust in many of the large, mature retail markets globally. Retailers who are targeting domestic consumers in particular, continue to push ahead with new store openings and the introduction of new store concepts. Notably in the U.S., retail rents have returned to growth for better-quality space due to strengthening demand. Some international retailers who have halted trading in Russia are accelerating store openings in other markets across the world to offset some of the anticipated loss in sales.

Future trends: Tourism key for a recovery in urban retail 

Outlook for 2022: Rising inflation, supply chain bottlenecks and labor shortages have led to a softening in the sales outlook for 2022 over recent months. However, demand for higher-quality space in mature retail markets is expected to continue, especially from retailers targeting domestic consumers and more suburban locations.

Long-term: A recovery in international tourism is key for many inner-city retail destinations. While footfall in these locations is recovering, it is still below pre-pandemic levels. The daily mix of footfall in inner cities is also structurally changing as the hybrid working model becomes more permanent, strengthening retailer demand for space in power centers, retail parks and local neighborhood shopping destinations instead. Tourism is projected to return to pre-pandemic levels by 2023-2024, which will boost sales and demand for urban locations.