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Retailers Give “Apocalypse” the Slip through Greater Store Size and Innovation

10 June, 2019

The arrival of the Internet and the boom in new technologies generated fear that physical commerce might disappear. In Spain, however, this type of commerce has managed to adapt to the new demands of consumers, thanks to the rapid assimilation of the digital era. Only by taking a look at the data, one can realize […]

Retailers Give "Apocalypse" the Slip through Greater Store Size and Innovation

The arrival of the Internet and the boom in new technologies generated fear that physical commerce might disappear. In Spain, however, this type of commerce has managed to adapt to the new demands of consumers, thanks to the rapid assimilation of the digital era. Only by taking a look at the data, one can realize that we are far from that retail “apocalypse” predicted by some to happen.

According to the 6th edition of our Retail Market Study, the investment volume in the retail industry reached some €3,800 million in 2018. Although slightly lower than that of 2017 (-2.1%), this figure is still higher than that reached in previous years. High Street investment, with some €1,300 million, account for 35% of the total amount invested, especially by Socimis (Spanish REITs) and Investment Funds. This high investment volume, which is expected to continue to increase during this year -although more moderately- is the clear sign that, unlike the general belief, retail premises at street level continue to arouse a great deal of interest in our country. Their high liquidity and yield increase have been key factors to close the year with such a positive result. If Madrid and Barcelona are the queen cities of retail, due to this price rise investors are looking for new locations giving less stressed yields.

Nevertheless, as regards leased premises, differences can be observed between more and less tourist cities. As in previous years, Madrid and Barcelona are the cities with the highest demand for retail premises and almost 100% occupancy rates in prime areas, which leads to an increase in prices. In particular, Puerta del Ángel, in the city Barcelona, is the most expensive street in Spain with an average monthly rent of €275 per sqm, €5 more compared to 2017.

Larios street, in Málaga; Jorge Juan and Don Juan de Austria in Valencia; and Jaime III and San Miguel in Palma are still on the main companies’ roadmaps when designing their development strategy in Spain. These cities are also very attractive for operators due to their growing development or their urban reactivation plans. Despite this, there is no doubt that Bilbao is one of the great beneficiaries. Gran Vía López de Haro is undoubtedly the most demanded street in the city, with 100% occupancy in its most exclusive section and vacancy rates between 4% and 7% in the rest of streets under analysis. This sustained growth of the sector in Bilbao is expected to be maintained over the coming months, which will position the city as one of the retail capital cities in Spain.

Consumer-attracting strategies

Brands are now ‘in the hunt and capture’ of large spaces, much less numerous and consequently more expensive, in the most commercial areas, especially in Madrid and Barcelona. What brands are seeking in these large-scale stores is to create emblematic spaces, generating a brand-consumer link by offering a unique user experience; spaces where products can be tested or a customised item can be acquired. This phenomenon, which has been called a flagship, has come to stay and shows the recent opening of fashion giants’ stores in the main Madrid and Valencia hubs.

In this way, omnichannel has become the buzzword in the sector. Nowadays, users have different ways to connect with retailers and buy their products where, when and how they want. It can be observed that physical stores are riding high on the wave of innovation to turn into spaces focused on the shopping experience. The implementation of smartshelves, interactive fitting rooms or RFID tagging are just some examples, and more space is also allocated to ‘Click & Collect’ collection points. In addition, retailers are implementing advanced measurement systems to obtain accurate information on consumer behaviour and preferences in their stores.

For these types of strategies to be successful, synergies between markets are needed to enable a shopping experience through all existing channels, as is already happening between the retail and logistics sectors. The success of these new trends shows that they both will continue to settle their relationship in Spain, which will lead to reduction in delivery times, incorporation of intermediate distribution points and opening of premises exclusively dedicated to product collection.

In turn, the good economic situation Spain has continued to enjoy during 2018 -despite a slight deceleration in the growth rate-, places our country above expectations for the euro zone and invites optimism. The outlook for the coming years is positive, which will encourage the retail sector growth to maintain its pace with rent rises for most demanded property types and occupancy rates where there is availability, mainly on High Street locations. All this indicates that retail will continue to play a fundamental role in the economy. Undoubtedly, this favourable climate will encourage new operators to become interested in our country, and those already established will continue to grow.

Sandra Daza
Managing Director of Gesvalt

 

(Published by: “El Economista”)

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