THE GEOGRAPHY OF LUXURY RETAIL & OPPORTUNITY MARKETS FOR 2018 - PowerPoint PPT Presentation

THE GEOGRAPHY OF LUXURY RETAIL & OPPORTUNITY MARKETS FOR 2018 21 st November 2017

REFOCUS ON DESTINATION MARKETS STEPS UP IN 2017

Global luxury new store openings Total new openings down in 2017 but with a refocus on European and North American markets Europe 38% ( 36% ) North America Asia Pacific 20% (15 % ) 33% ( 33% ) China 5% (9 % ) Middle East 4% (8 % ) 350 -27% on 2016

Global top 10 cities Paris bounces back with some new additions to the top 10 New additions to the top 10 4 th London 1 st Paris 5.0% 10 th Toronto 5.9% 3.1% 2 nd Tokyo 4 th Milan 7 th Los 7 th New York 5.9% Angeles 9 th Kuala 5.0% 3.7% 3.7% Lumpur 6 th Hong Kong 3.1% 4.7% 3 rd Singapore 7 th New York: 3.7% 5.6%

Europe also saw new entrants to its top 10 Growth tourist markets, particularly those with ‘affluent’ domestic populations, moved up the agenda for brands in 2017 New additions to the top 10 Other 5 th Oslo 20% 1.2% 7 th 7 th Frankfurt Amsterdam 0.9% 0.9% High 2 nd London Street 7 th Prague 5.0% 80% 0.9% 4 th Munich 1 st Paris 2.2% 5.9% 7 th Florence 2 nd Milan 0.9% 5.0% 5 th Rome 1.2%

We’re starting to see a slight shift in the parts of the luxury market that are being the most acquisitive Fashion continues to dominate but increased ‘Accessible’ luxury brands becoming more active activity by Watch and Bag & Luggage brands Other Bags & 4% Watches Luggage Accessible Ultra Luxury 10% 9% 2017 luxury 55% 45% Jewellery 7% Footwear 7% Accessible Brand origin Ultra Luxury 2016 luxury 62% Ave store size Fashion 38% 63% Name some brands

WHY ARE BRANDS FOCUSING ON DESTINATION MARKETS?

Decline in luxury spend globally in 2016 driven by softening in Chinese spend; this has bounced back this year. Personal luxury goods spend Spend by consumer nationality €250bn €262bn -0.4% €350 RoW, 7% RoW, 8% Other Asian Other Asian €300 11% 12% -3% YoY +11% YoY €250 Chinese Chinese 32% 30% Spend (€bn) €200 Japanese Japanese €150 11% 10% American American €100 23% 22% €50 European European 18% 18% €0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017e 2020f 2016 2017e Source: Bain Consulting

What does this mean for occupational demand going forward? Local consumption is very important but increasingly it is tourism that will be the key driver. Global tourism forecasts 2025 Chinese arrivals by region Europe Chinese outbound tourists (RHS) 1,750 350 +207 % Middle East, Europe 125 RoW 31m US 1,500 300 International tourism arrivals (millions) 42m Chinese outbound tourists (millions) 7m 1,250 250 Europe 682 1,000 200 750 150 Wider HK& Asia Pac Asia & Pacific 445 Macau 500 100 104m 117m Americas 250 50 224 Africa 110 0 0 1980 1995 2010 2016 2020 2025 Source: Goldman Sachs; Savills Research Source: UNWTO; CLSA; Savills Research

Opportunity markets beyond London and Paris ‘Affordable’ tourist markets likely to prove attractive to expanding retailers; aligns with current targets Luxury European cities: Affluence, tourism and rents Luxury brands Prime rent top 5 target 2,000 Q317 markets € per sqm pa 2018/19 Frankfurt 1,500 Approx number of HNWI Munich 1,000 Dusseldorf Amsterdam Berlin Vienna Stockholm Madrid 500 Oslo Barcelona Prague Budapest Milan Lisbon Copenhagen Dublin 0 - 2 4 6 8 10 -500 International overnight arrivals 2016 (million)

IDENTIFYING OPPORTUNITY INVESTMENT MARKETS

Is recent softening in investor confidence being tempered by our changing shopping habits? European retail transaction volumes European retail investment vols % share of online €60,000 25% Retail structural Post GFC €55,000 GFC downturn & fallout shift intensifies bounce €50,000 20% Transaction volumes (€m) Share of online retail (UK) €45,000 €40,000 15% €35,000 €30,000 €25,000 10% €20,000 €15,000 5% €10,000 €5,000 €0 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Savills Research; ONS

But, this is being overplayed in some parts of the market with the ‘store’ increasingly seen as more than just a place to sell product. Homewares & furniture Pureplay e-tailers F&B Manufacturers

The refocus on destination markets is also apparent in pricing Prime yields vs tourism Q217 Indicative prime HS yields International overnight visitors - 2016 (Mastercard) 6% 25 Indicative high street prime yields Q217 International overnight visitors (millions) 20 4% 15 10 2% 5 0% - Source: Mastercard; Savills Research (Net Initial Yields)

Our top picks for 2018 1 st London Market Fundamentals 2 nd Munich • Tourist arrivals • Retail sales 3 rd Paris •Affluence •Unemployment rate 4 th Madrid 5 th Barcelona Occupier terms 6 th Dublin • Typical leasing term • Rent review structure 7 th Amsterdam 8 th Berlin 9 th Milan Pricing • Current prime HS yield 10 th Dusseldorf

2018 outlook  The rebound in luxury spend to translate into renewed occupational activity, but the focus to be on strategic and under- represented markets.  Structural shift in retailing is perhaps overplayed; the physical store will continue to play an important role….  ….however, the gap between prime and secondary is likely to widen further.  Munich, Madrid and Barcelona look to be the most interesting investment markets for 2018.