Unexpectedly good Christmas 2022 retail figures caused many to sit up and take notice of how retail recovered over the course of the last year. Reduced consumer confidence, a cost-of-living crisis, economic uncertainty and the hangover from the pandemic caused some harm in the world of retail.
However, over 2022 the sector set itself up for future resilience and success. As we get a better sense of how 2023 retail trends and leisure trends set to shape up, we can see that there are still many challenges that will need to be dealt with.
Independent retail will still feel the squeeze, particularly if government support ends. Similarly, many larger national chains are still hedging their bets slightly and are yet to undertake further expansion plans.
Overall though, 2023 commercial real estate trends look positive. The biggest danger foreseen in many analyses was an incoming recession which would once again hit spending. Now, the Office for Budget Responsibility has predicted that a recession will be avoided, followed by growth of 1.8% in 2024, 2.5% in 2025 and 2.1% in 2026.
With this in mind, while 2023 will undoubtedly be tough in many ways, it seems unlikely that consumer demand will fall again in the way it did during the last two years. The experience of Covid-19 will make retailers and leisure operators more resilient than they were, offering assurance to retail property landlords and tenants.
Retail and leisure vacancy rates predicted to fall during 2023 due to demand
What will this look like in reality? The latest FY Retail and Leisure Report sees the vacancy rate for this type of property falling in 2023. The more cautious approach taken over the last two years will bear fruit and see fewer businesses going into administration, and therefore fewer closures.
This is forecasted to reduce the average UK vacancy rate by 0.1% over 2023, and lays the groundwork for future falls again in 2024 as the economy continues to recover.
Similarly strong figures for openings and closures have also been predicted. 2022 saw a total of approximately 3,000 closures NET, but looking ahead it is likely that the major wave of closures has ended. Remaining occupiers are more likely to stay in place or even expand. Major businesses like Marks and Spencers and Zara have committed to major expansion programmes which will be a boost to high streets, shopping centres and retail parks.
This will be further aided in April 2023 with the latest revaluation of business rates comes into force. It has been projected that this will leave to an average rate reduction of 10% across England and Wales and is particularly beneficial for businesses renting larger spaces.
Despite some setbacks for retail and leisure real estate as banks continue to move online and independents face more uncertainty, the picture is positive. Knight Franks estimates in its Retail Property Outlook Report 2023 that retail and leisure sales will remain comfortably positive over the rest of the year, with growth of more than 3%. The report states that any decline seen over the last two years will begin to reverse from Q2 2023 onwards and that the market will continue stabilising.
Worth noting is the fact that all the above predictions on future vacancy rates, openings and closures were based on the assumption of a recession. If that doesn’t come to pass as per the previous predictions from the Office for Budget Responsibility, it is reasonable to expect that the final outcomes in 2023 and 2024 could be even more positive than thought.
Charlotte Jarrett, Head of Retail at FIREM, says: “The retail and leisure sector is performing more strongly than many anticipated. Now, with the threat of a recession receding, we are anticipating even better days ahead.
“Based on the available data, we are looking at greater high street footfall and increasingly busy shopping centres and retail parks over the rest of 2023 and into 2024.
“This is shaping up to be a strong year for retail and leisure – and business owners can make the most of it by getting ahead of the game and securing the ideal property for their business now.”
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