Extract from JLL’s Redefining Retail Places
There has been a lot of talk recently about multi-speed global economic growth and the erratic nature of the economic recovery around the world. This is certainly the case in the EMEA region, where the contrast between those in the fast lane of economic growth and those crawling (or even reversing) along the slow lane, is stark.
Europe remains global laggard…
In global terms, Europe remains the laggard (see chart below), albeit forecasts have been revised upwards recently. The Eurozone is expected to emerge from recession this year, although growth rates will continue to trail other regions and the rest of the EU. Germany shows the most consistent expansion during 2014-15, while France’s recovery is slower than the sluggish European average. By contrast, fortunes for the troubled fringe economies have improved more than expected, with Spain and Italy forecast to return to expansion.
In the rest of Europe, prospects are healthier. The UK has seen a further upward revision in forecasts and is now predicted to be the most dynamic of the larger developed economies. Growth is not sustained at this high rate, but remains above that of its Eurozone neighbours. The Nordic recovery is slightly behind the UK, but still ahead of the Eurozone, while the improvement in CEE markets continues, with Poland performing strongly. Elsewhere in the east, the most notable change has been a further sharp downgrade for the Russian forecast.
…but with real pockets of growth
Despite this downgrade, Russia and the other European growth powerhouse market of Turkey look set to outperform in the long-term, and benefit from strong demographics and young, dynamic populations. Elsewhere, some of the smaller, ex-Soviet states (Kazakhstan, Uzbekistan), will emerge from the pack, driven by real pockets of wealth, improving economic stability and consistent growth. And the Baltic states of Latvia, Lithuania and Estonia will continue their bounce back from the pronounced economic contraction during the recession.
Africa the region to watch long-term
Outside of Europe, perhaps the region to watch is Africa, and in particular sub-Saharan Africa as you can see in the chart above. While growth in North Africa and the Gulf could be limited by social unrest, in sub-Saharan Africa the young and fast-growing populations, steady GDP growth, mushrooming middle classes and strong urbanisation rates are stirring global interest, despite the obvious challenges around infrastructure. Economic growth in Sub-Saharan is forecast to rise from 4.7% in 2013 to a 5.2% in 2014, according to the World Bank. This performance is boosted by rising investment in natural resources and infrastructure, and strong household spending.
Implications for retail real estate
The EMEA region is a highly polarised one, and contains some of the most mature economies in the world, and also some of the most embryonic. As such, the opportunities for the retail industry in the region are numerous and varied. There remain opportunities for development and expansion in some of the more mature western retail markets, particularly in some of the big cities and sub-markets where the local economic fundamentals and growth prospects are strong. For international retailers, portfolio ‘road-mapping’ is becoming increasingly focussed on micro (cities), rather than macro (countries) as cross border barriers fall and they case diversification and growth. After entering core, established city retail markets, retailers are selectively expanding into regional cities, then into growth markets, as identified in our report Destination Europe 2013.
Elsewhere, the emerging and frontier markets to the south and east could prove irresistible to real estate developers, investors and retailers alike. With opportunity comes risk, however; the recent crisis in the Ukraine certainly highlights the fragile nature of the opportunity presented by the emerging world economies.
Redefining Retail Places: for further information on trends influencing the retail landscape
Global: Discover how multi-speed economic growth is influencing retail real estate at a Global level
Asia Pacific: Discover how multi-speed economic growth (and other trends) is influencing the expansion of retailers across APAC.
United States: Discover how multi-speed economic growth (and other trends) is influencing the expansion of retailers across the United States.
Colin Burnet is a Director in JLL’s European Retail Research team.