The alarm bells are ringing for Dutch retail. We have been experiencing Covid-19, along with restrictive measures and shop closures for almost 17 months. The share of online growth is unprecedented, not only in the ‘expected’ sectors but also in relatively new sectors such as food. A large proportion of (independent) retailers have at least five months of turnover to make up, especially if online sales didn’t generate much. Our footfall counts in June show that there are still far fewer people walking through the shopping streets: in the centres of larger cities often only half of pre-Covid-19.
However, if we look at the national vacancy figures, we do not see this. Only at the beginning of the Covid-19 crisis did we see a very slight increase in vacancy rates, from 7.4% in March 2020 to 7.5% in July 2020. The rest of the year 2020 the vacancy rate continued to fluctuate around that percentage, only to drop every month in 2021, to 7.2% on 1 August this year. In absolute numbers, 600 fewer properties were vacant on 1 August than on 1 January 2021.
Earlier predictions were gloomier
In our corona impact analysis of September 2020 (see this blog), our forecast was a lot bleaker. We predicted that the vacancy rate would rise to 10% by early 2022. This does not seem to be happening for the time being for two reasons:
- In last year’s forecast, we were still assuming a recession, predicted by economists, which would also cause an additional increase in vacancies. This recession does not seem to have materialised, which means that we will not achieve the predicted 10% vacancy rate.
- We did not expect to have to deal with Corona for so long last year. Everything seemed to indicate that we would be able to move on in the spring of 2021 and that the financial support of the government would then also cease. Many entrepreneurs are in dire straits, but government support is fortunately still keeping them afloat. As soon as that support stops, any small setback, such as a sick member of staff or disappointing seasonal sales, can be fatal for an entrepreneur. Then, a number of businesses will still have to close their books. In the longer term, we therefore expect some increase in vacancy levels.
How is it possible that the vacancy rate remains almost stable in these turbulent times?
The explanation for this paradox is that it is a national average. However, we see clear differences in sectors and types of shopping areas. In addition, transformation to non-retail plays an important role.
Daily centres do well
As mentioned, daily shops have been fairly unaffected by all the Covid-19 restrictions. In fact, due to the prolonged closure of the hotel and catering industry, many daily sectors have experienced a significant increase in turnover. Not just supermarkets, but also specialist shops such as butchers, cheese shops, caterers, etc. This resulted in a fall of vacancy rates from 9.1% at the beginning of the year to 8.4%, in shopping areas that focus on daily supply.
Do-it-yourself and furniture shops are also doing good
Another sector that did well during Covid-19 was furniture and DIY. Working from home and the continued prospect of doing so, the booming housing market and the money that households have saved by not going on holiday or by going on holidays at a lower cost, mean that these sectors are also experiencing top times. Vacancy on Big box retail parks is therefore decreasing rapidly, from 6.7% at the beginning of this year to less than 6.3% now.
Daily shopping centres and Big box retail parks are therefore the main drivers of declining vacancy rates.
Inner cities in dire straits
On the other hand, we see a much less rosy picture in the 17 largest centres in the Netherlands. In these centres, vacancy rates actually rose from 7.9% at the start of the year to 8.3% today. Before Covid-19, these centres were doing relatively well, but the increase in online shopping, the avoidance of crowded places and the absence of international tourists are now hitting hard.
Covid-19 is a game changer. The centres of medium-sized cities, which had the most difficult times before Covid-19, now show slightly declining vacancy rates. Nowadays, when people go shopping, they prefer to stay close to home, go to a place that is not too busy and where they can get easily by their own form of transport. Despite the high number of vaccinated people, we do not seem to be rid of Covid-19 yet. I do not see this trend changing. The large city centres of the Netherlands will therefore face a major challenge in the coming period. This will also have consequences for real estate prices, which are still at a (too) high level in these centres.
Transformation of retail properties reduces vacancy rates
An equally important reason for the declining vacancy rate is the conversion of retail premises to other functions (often housing or offices). In the first few months of this year, an unprecedentedly high percentage of vacant shops (almost 5%) were given a different function. This seems to be another effect of the Covid-19 crisis; the realisation that in the long term an alternative solution must be found for vacant shops.
Here, too, a difference can be seen between the large city centres, where this happened to 4% of the properties, and the centres of the slightly smaller cities, where this percentage was 6%. In many mid-sized centres, the downward revaluation of retail property has already taken place and there is scope for alternative use of retail property. In the large city centres shop rents are still at a much higher level and alternative use is much more difficult. In the better locations in the major cities, this downward revaluation has not yet taken place to a sufficient extent.
It is therefore clear that Covid-19 causes a dichotomy on the one hand, with daily centres and big box retail parks doing well, and the shopping centres where we do more recreational shopping experiencing hard times on the other. However, Covid-19 also seems to be indirectly ensuring that a very cautious recovery can be seen in medium-sized centres. Not because many new shops are now opening in those centres, but because the realisation now seems to be sinking in that retail cannot return to all places and empty premises in those centres are being filled with non-retail functions. In this way, Covid-19 sometimes brings something good in addition to a great deal of misery.