THE GEOGRAPHY OF LUXURY RETAIL & OPPORTUNITY MARKETS FOR 2018 - - PowerPoint PPT Presentation

21st November 2017

THE GEOGRAPHY OF LUXURY RETAIL & OPPORTUNITY MARKETS FOR 2018

REFOCUS ON DESTINATION MARKETS STEPS UP IN 2017

Global luxury new store openings

Total new openings down in 2017 but with a refocus on European and North American markets

350

• 27% on

2016

Europe 38% (36%) Middle East 4% (8%) Asia Pacific 33% (33%) China 5% (9%) North America 20% (15%)

Global top 10 cities

Paris bounces back with some new additions to the top 10 7th New York: 3.7%

1st Paris

5.9%

2nd Tokyo

5.9% 4th London

5.0%

4th Milan

5.0%

6th Hong Kong

4.7% 7th New York

3.7%

7th Los Angeles

3.7%

9th Kuala Lumpur

3.1%

10th Toronto

3.1%

3rd Singapore

5.6%

New additions to the top 10

Europe also saw new entrants to its top 10

Growth tourist markets, particularly those with ‘affluent’ domestic populations, moved up the agenda for brands in 2017

2nd Milan

5.0% 4th Munich

2.2% 5th Oslo

1.2%

5th Rome

1.2% 7th Amsterdam

0.9%

7th Florence

0.9%

7th Prague

0.9%

High Street 80% Other 20%

2nd London

5.0%

1st Paris

5.9%

7th Frankfurt

0.9%

New additions to the top 10

We’re starting to see a slight shift in the parts of the luxury market that are being the most acquisitive

Brand origin Ave store size Name some brands

Accessible luxury 38% Accessible luxury 45% Ultra Luxury 62% Ultra Luxury 55% 2016 2017

‘Accessible’ luxury brands becoming more active

Bags & Luggage 9% Fashion 63% Footwear 7% Jewellery 7% Watches 10% Other 4%

Fashion continues to dominate but increased activity by Watch and Bag & Luggage brands

WHY ARE BRANDS FOCUSING ON DESTINATION MARKETS?

Decline in luxury spend globally in 2016 driven by softening in Chinese spend; this has bounced back this year.

Source: Bain Consulting

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017e 2020f €0 €50 €100 €150 €200 €250 €300 €350 Spend (€bn)

Personal luxury goods spend

• 0.4%

European 18% European 18% American 23% American 22% Japanese 11% Japanese 10% Chinese 30% Chinese 32% Other Asian 12% Other Asian 11% RoW, 8% RoW, 7% 2016 2017e

Spend by consumer nationality €250bn €262bn

• 3% YoY

+11% YoY

What does this mean for occupational demand going forward?

Local consumption is very important but increasingly it is tourism that will be the key driver.

Africa 110 Americas 224 Asia & Pacific 445 Europe 682 Middle East, 125 50 100 150 200 250 300 350 1980 1995 2010 2016 2020 2025 250 500 750 1,000 1,250 1,500 1,750 Chinese outbound tourists (millions) International tourism arrivals (millions) Chinese outbound tourists (RHS)

Global tourism forecasts

Source: UNWTO; CLSA; Savills Research Source: Goldman Sachs; Savills Research

Europe 31m US 7m HK& Macau 117m Wider Asia Pac 104m RoW 42m 2025 Chinese arrivals by region

Europe +207%

Opportunity markets beyond London and Paris

‘Affordable’ tourist markets likely to prove attractive to expanding retailers; aligns with current targets

Madrid Munich Barcelona Berlin Milan Dublin Amsterdam Frankfurt Dusseldorf Vienna Prague Stockholm Lisbon Copenhagen Oslo Budapest

• 2

4 6 8 10

• 500

500 1,000 1,500 2,000 International overnight arrivals 2016 (million) Approx number of HNWI

European cities: Affluence, tourism and rents

Luxury Prime rent Q317 € per sqm pa

Luxury brands top 5 target markets 2018/19

IDENTIFYING OPPORTUNITY INVESTMENT MARKETS

Is recent softening in investor confidence being tempered by

• ur changing shopping habits?

European retail transaction volumes

€0 €5,000 €10,000 €15,000 €20,000 €25,000 €30,000 €35,000 €40,000 €45,000 €50,000 €55,000 €60,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0% 5% 10% 15% 20% 25% Transaction volumes (€m) Share of online retail (UK) European retail investment vols % share of online

Source: Savills Research; ONS

GFC downturn & fallout Post GFC bounce Retail structural shift intensifies

But, this is being overplayed in some parts of the market with the ‘store’ increasingly seen as more than just a place to sell product.

Homewares & furniture Pureplay e-tailers Manufacturers F&B

The refocus on destination markets is also apparent in pricing

Source: Mastercard; Savills Research (Net Initial Yields)

Prime yields vs tourism

• 5

10 15 20 25 0% 2% 4% 6% International overnight visitors (millions) Indicative high street prime yields Q217 Q217 Indicative prime HS yields International overnight visitors - 2016 (Mastercard)

Our top picks for 2018

Pricing

• Current prime HS yield

Market Fundamentals

• Tourist arrivals
• Retail sales
• Affluence
• Unemployment rate

Occupier terms

• Typical leasing term
• Rent review structure

1st London

2nd Munich

3rd Paris

4th Madrid

5th Barcelona

6th Dublin

7th Amsterdam 10th Dusseldorf 9th Milan

8th Berlin

2018 outlook

• The rebound in luxury spend to translate

into renewed occupational activity, but the focus to be on strategic and under- represented markets.

• Structural shift in retailing is perhaps
• verplayed; the physical store will continue

to play an important role….

• ….however, the gap between prime and

secondary is likely to widen further.

• Munich, Madrid and Barcelona look to be

the most interesting investment markets for 2018.