A cautious recovery in leasing activity expected during 2021

Global Real Estate Perspective, February 2021

The festive season, running from November to early January and the most important trading period for many retailers across the globe, presented unique challenges in 2020 as retailers navigated strict COVID‑19 containment measures in countries that have seen a major surge in infections.

While the short-term outlook remains uncertain, the arrival of effective vaccines is likely to act as a tipping point as early as the second half of 2021. Prime high streets and shopping centers are expected to see a gradual return of customers with pent-up demand and social consumption driving sales. Most major retail markets are anticipated to see a cautious recovery in leasing activity in 2021, and a further pick-up in 2022.

Once the pandemic subsides, there will be considerable variation in the speed and strength of the recovery. Major retail markets are expected to see continued churn in occupiers with elevated levels of store closures and many retailers rightsizing their store portfolios. The limited number of new store openings will be driven by well-capitalized operators and new market entrants. Flexible leases will become increasingly important for retailers to test market appetite and mitigate operational risks

Future trends: Accelerated right-sizing of store portfolios
  • Short-term: With store closures from 2020 still taking effect and continuing restrictions in many markets, retail sectors and locations are expected to see a continued divergence in performance. Higher-quality assets and owners able to proactively adjust offerings and tenant mix will outperform. As restrictions are loosened and vaccine rollouts progress, pent-up demand is likely to drive higher in-store sales and leasing activity is anticipated to gradually improve over the course of 2021.
  • Long-term: Retailers are accelerating the rightsizing of store portfolios in an effort to return to profitable growth in an omni-channel landscape. With retailers in most developed countries expected to occupy less physical space, long-term demand is pivoting towards large cities and major shopping destinations on the one hand and accessible local retail places on the other hand.