AEW's North America Research team are pleased to present the Q4 2024 U.S. Research Perspective.
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U.S. Research Perspective Q4 2024
March 2025
Asia Pacific Market Perspective Q4 2024
February 2025
AEW's Asia Pacific Research team are pleased to present the Q4 2024 U.S. Research Perspective.
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The Long-Awaited Renaissance of European Retail
February 2025
The Long-Awaited Renaissance of European Retail Despite ongoing uncertainty, real retail sales in the Eurozone are projected to grow modestly at 1.7% p.a., outpacing both 1.4% p.a. real GDP and 1.0% p.a. real disposable income growth over the 2025-29 period. In-store retail sales in Europe are expected to stabilize with an annual growth rate of around 0.6% p.a. over the next five years. This forecast reflects the projected proportion of e-commerce within total retail sales to 20% by 2029, up from 16% in 2024. Prime retail vacancy as reported by INREV has stabilized at 3% in Q3 2024, down from 4% in 2020. However, shopping center vacancy has risen to 6.5% as of Q3 2024. Vacancy for retail warehouses and high street have declined over the past 2-3 years. After double digit declines in 2019-22, European prime rents for both shopping centres and high street retail are expected to return to 1.3% annual growth in 2025-29. At 2.4% and 2.0% p.a., French prime retail rents are projected to lead the way. Manager sentiment towards retail experienced the largest quarterly improvement in Q4 2024, following a prolonged slump in 2015-21. German and French retail sentiment is expected to follow the UK upward lead, similar to post-2015 downward trend. Retail investment volumes in 2024 have risen to EUR 25.4bn, reflecting an 11% increase from the weak performance in 2023. This growth was primarily driven by shopping centre transactions, which experienced a 27% increase during the period. According to our Sep-2024 forecast, core European shopping centre and high street yields are expected to tighten by 40 and 30 basis points by 2029, respectively, from their 2024 peak levels of 6.7% for shopping centres and 5.2% for high street retail. European prime retail total returns are anticipated to average 8.2% p.a. in 2025-29, with shopping centres at 8.9% p.a., and high street retail at 7.4% p.a. Shopping centre returns are projected to surpass those of high street retail in most countries. Retail is projected to offer a higher current income yield of 6.4% and 5.1% in shopping centres and high street compared to the 5.0% average across non-retail sectors, even if total returns trails non-retail sectors. Finally, if future property yield tightening becomes less certain -- as government bond yields are now expected to stay higher for longer -- more investors might be interested in the relative safety of European retails’ high current income returns.
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