'Investors, reap the rewards of changing consumer behaviour'

After a few slower years, a more promising period is now dawning in the retail investment market. Liquidity is increasing, vacancy is declining and retail areas are diversifying. This is all to do with the rapidly changing behaviour of consumers: they are increasingly ordering their purchases online and they want those orders delivered quickly. That requires an excellent logistics network, with last-mile delivery being the most important step. Lodewijk Buijs, Jim Orsel and Joep van Vliet explain how you can take advantage of the opportunities this new environment is creating in the retail and logistics sector.

Bouncing back
The investment market for city-centre retail property is seen as slow-moving. However, for some time now, the total vacancy rate for all types of retail has been falling. ‘Vacancy is higher for city-centre real estate, but there is increasing demand from users,’ says Lodewijk Buijs, Senior Director Retail. That is partly because existing users are optimising their retail networks, but also due to new entrants who started out in online retail. ‘We are also seeing a fall in vacancy in city centres as more buildings are converted for other purposes. In the past year, Locatus reported that approximately 2,000 properties were removed from the retail stock and have been converted.’ These trends are giving investors the confidence to invest in retail property once again, as the potential yields are attractive and the risks can be priced accurately.

Diversification in retail areas
‘Within retail, opportunistic retail and supermarkets are particularly attractive categories. So interesting, in fact, that they are attracting investors from other sectors, such as offices and logistics. The buildings that used to house Hudson’s Bay and V&D, for example, have mainly been purchased by new entrants.’ According to Joep van Vliet, Head of Data Intelligence, this increase in demand is affecting the market: ‘We are seeing initial yields for convenience centres falling, which reflects the current prime status of supermarkets. On the other hand, initial yields for non-food stores are rising. This is providing opportunities to convert surplus retail property for other functions.’

Attractive purchase prices and rising initial yields are leading to diversification in retail areas. Joep: ‘Take the municipality of Apeldoorn, for example: a lot of retail outlets for furniture, clothing and shoes have disappeared there in recent years. At the same time, hospitality and cultural locations have actually gained ground. So we’re seeing that retail areas are adapting to consumer demand.’ Less retail space is needed for products that can be purchased online. Instead, people are coming to retail areas more to experience restaurants, cafés, bars or culture.

More online, but new stores too
The retail sector in the Netherlands has been through two challenging years. ‘We have already passed the stage of looking at the winners and losers of the crisis,’ says Lodewijk. ‘The majority of retailers have been forced to adapt their business models very rapidly: almost all retailers now sell online, at least in part, and they have arranged their logistics to accommodate that. Forty online retailers have now also expanded to include new physical stores. Coolblue and MyJewellery, for instance, are opening up new physical stores in the Netherlands, and Rituals is increasing its number of locations in the Netherlands. We are seeing an enormous shift towards physical stores in the logistics non-food sector.’

Convenience on the move
While the non-food sector is adapting rapidly, little has changed in the supermarket sector. But not for much longer. ‘While online turnover for the non-food retail sector has exploded, it is still below 10% for supermarkets. But a lot is going to happen in the convenience market in the next few years. From takeovers – as we have seen with Deen – to major e-developments. Real estate investors need to take this into account.’

Picnic’s real estate vision
Michiel Muller, Founder of Picnic

New real estate
‘We are growing fast, both in the Netherlands and abroad. We are following our proven infrastructure approach in this sector: large fulfilment centres and smaller city hubs. Location is especially important for the latter category. The hubs have to be close to our customers and easily accessible – both by bicycle and public transport for our workers, but also by truck for suppliers. These are our three most important criteria. There also has to be enough space, of course, and it is nice if that space is social. We also need enough power and charging facilities for our electric vehicles.’

‘Our delivery vehicles have a top speed of 50 kilometres per hour, so a location 20 kilometres outside the city is no good. That proximity improves the reliability of our delivery times: 98% of our orders arrive within the 20 minutes that we promise.’

Sustainable logistics
‘Sustainability is very important to us. Our electric vehicles are one obvious example of this. In addition, there is no food waste: we only place an order with our suppliers after consumers have ordered and paid for their shopping. We’re also working on large-scale solar projects at our logistics hubs, and we’re installing a smart grid. As far as we are concerned, sustainability also means a safe workplace. For that reason we are focusing a lot on safety systems, so that our drivers undergo safety coaching and get a safety score for their driving when they return to the hub.’

The fight for the best location
Picnic shows that a strong logistics network and a focus on last-mile delivery are important requirements for growth. But we are still short of logistics hubs to meet the market demand, says Jim Orsel, Head of Industrial & Logistics Netherlands: ‘More distribution centres are needed, particularly in and around urban areas. Companies want to be even closer to their consumers in order to deliver their orders quickly and sustainably. Investors who know enough about supply chains can respond to this demand by providing good locations.’ ‘We are also seeing this in the data on rental transactions in the logistics sector,’ Joep adds. ‘Rents are the highest in and around urban areas. Logistics service providers are happy to pay a higher price for a strategic location.’

Would you like to know more?
At our Outlook event on 27 January 2022, Lodewijk, Jim and Joep had an extensive discussion of the most important trends and developments in the Dutch retail and logistics investment market. The above text is a product of that discussion. Would you like to know more about our outlook for other real estate sectors? Then why not ask us for our Outlook report?