In the Colliers International Retail team, we always endeavour to see the market through a retailer’s eyes
This is particularly important when comparing competing shopping locations. The real estate business tends to focus primarily on rental levels because – to be blunt – they predicate the income received by developers and investors.
However, retailers across the world always consider the total occupancy cost incurred by leasing a store – the true annual bill for committing to real estate. In our latest piece of retail research – The Real Cost of Setting Up Shop – we’ve taken a look at the varying nature of occupancy costs in retail locations across key European markets.
In some markets, the percentage of total occupancy costs made up by non-rental costs is startling. Local taxes levied on property occupation are a major driver of these costs and differ widely from country to country.
However, in any location, it is the profitability metric which retailers are ultimately guided by. In major shopping cities which can guarantee high footfall levels and retail spend – brands are willing to shoulder higher tax burdens in return for potentially higher profitability.
For example, London’s prime retail pitches continue to attract international retailers despite demanding some of the highest occupancy costs in all of Europe. In this instance, it seems that retailers are more influenced by the fact that London was the world’s most visited city in 2015, and generated total annual spend by international tourists of more than US$20bn. Accordingly, it remains the top destination of choice for international retailers.
From a real estate perspective, it is interesting to ponder where rents in cities with high occupancy costs would rise to if they were freed of the burden of additional local costs and taxes. Whilst we shouldn’t hold our breath waiting for that to happen, it is a timely reminder that to truly understand any location you need to look at real estate from the retailer’s perspective.