C&W tepid on European retail rents

In its corporate blog, Cushman & Wakefield give report about some lukewarm positive signs about retail rents. When you take a hard look at the European trend line in the graph they post, the best that can be said is that at least rents don’t seem to be falling anymore. Come to think of it, how could they, if next to nothing is getting built? Citing the now-famous Next report they warn property owners to think about innovation, rather than counting on tightening supply to firm up rents.

That Next report really was interesting by the way. Cotton prices don’t usually make for fascinating reading, but what the heck, but it’s reassuring to hear a retail giant state that it doesn’t expect a double dip recession…

For 2011 we are experiencing significant product cost price pressure from around the world. The price of cotton has increased by 45% since this time last year, which is pushing up fabric prices. In addition we are beginning to experience wage cost inflation in some overseas territories. Manufacturing capacity is also an issue in the territories where factories were closed at the height of the credit crunch.

Next does not expect a double dip recession nor do we anticipate a meltdown in consumer spending, not least because overall employment levels are holding steady. However, we are expecting very little by way of growth in total consumer spending for the foreseeable future.

The reason for our caution is twofold: firstly, the necessary reduction in the Government deficit is likely to impact on consumer spending for some time to come. The annual reductions, which seem likely to be in the region of £20bn to £30bn per annum, are not so large as to derail the economy but enough to subdue any potential growth in consumer spending. To put the numbers in context, £25bn is only around 2% of total consumption but a significant share of normal growth in spending.

Secondly, a reaction to the credit crunch and the risk of future job losses has been for consumers to rebuild their personal balance sheets. This is partly self-restraint and partly as a result of the withdrawal of available credit. The growth in consumer credit has fallen from an average of 12% from 2000 to 2008 to around zero so far this year. The savings ratio has moved from 2% in 2008 to circa 7% today. It is therefore very unlikely that consumer spending will be driven by growth in consumer credit.

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