Luxembourg retail scene healthy again

Tim Harrup

Real estate advisor CBRE has published its report on the retail market within the Grand Duchy of Luxembourg. It finds that despite recession fears throughout Europe, Luxembourg is forecast to grow in line with recent years. Quarterly retail take-up was a high 45,372 m² in the fourth quarter to bring the annual total to a better-than-expected 62,000 m², supported by high streets and out-of-town. Vacancy is low to non-existent for top high streets, shopping centres and out-of-town locations and rents are returning to previous cyclical highs, with high streets recording € 2,000 /m²/year (excl VAT) prime rent as of the end of 2022. The pipeline of demands for 2023 is in-line with pre-Covid years. Investment, however, is very modest, as rising interest rates put pressure on yields.

CBRE goes on to say that Luxembourg maintains its attractiveness for retailers, consumers and investors given its high growth and incomes and favorable market conditions. Well-known prime locations continue to perform steadily. The CBD and long-established shopping centres such as Belle-Etoile are still vital to the market, maintaining high rents and occupancy. Newer developments that are well-located featuring the right tenant mix perform similarly, with some fully-occupied centres noting additional retailer interest. Secondary and tertiary locations can suffer from structural vacancy and changing consumer habits, though select locations may be ripe for a change of fortune. Today's strength, though, belies recent market challenges.

Luxembourg struggled disproportionately compared to its neighbors through the Covid pandemic on account of the large international commuter base working from home and thus not shopping in the country. Additionally, construction on the new tramline further disrupted mobility through the city. But with the pandemic controlled and tram operational from Central Station to Kirchberg, these obstacles are largely in the past. Retailers are bullish on the Luxembourg market over the long-term if a little less certain over the short-term. For retailers already present in Luxembourg, the current and expected market weakness from the high inflation environment provides an opportunity to strike further deals. For those unfamiliar with the market or looking to enter, the macro environment is generally freezing expansion plans.

Consumers also have a clear view of shopping in Luxembourg. According to surveys from CBRE, consumers living in Luxembourg choose shopping centres as their preferred shopping method, followed by high streets. Central shopping districts are challenging to access and the car-dominated Grand Duchy possesses numerous easily accessible shopping centres which helps to drive footfall. Out-of-town retail parks are less frequented by the domestic population and more so by frontier workers. That said, this format is relatively underdeveloped in Luxembourg. High prices and land availability are obstacles to growth. The best located establishments are fully occupied and often receive additional retailer inquiries.