Savills latest report reveals significant rent growth on Europe’s prime retail streets, with an average annual increase of 9.9% in Q3 2024 compared to the same period last year. This figure is nearly seven times higher than the 1.5% growth recorded in 2023. High-street retail saw a 5.9% growth, although the largest increase was observed on mass-market retail streets.

According to Savills, the rent growth reflects the reduced availability of retail spaces, due to strong demand from brands and new tenants. Over the past 12 months, commercial streets witnessed a reduction of 156 basis points in vacancy rates, compared to a 144 basis point decrease on luxury streets. The average vacancy rate on retail streets now stands at 3.6%, approaching pre-pandemic levels from 2019.

In Portugal, the most active sectors include restaurants, food retail, gyms, and fast fashion, with a focus on the Baixa-Chiado area in Lisbon and downtown Porto. Prime rents remain stable, with Rua Garrett, Rua do Carmo, and Rua Augusta in Lisbon, and Rua de Santa Catarina, Av. Aliados, and Rua das Flores in Porto, recording the highest values.

Although luxury retail streets led the post-pandemic recovery, they still show slightly higher vacancy rates compared to 2019 levels. According to the report, this is due to the selective approach of luxury brands, prioritising higher-quality spaces.

José Galvão, Head of Retail at Savills Portugal, highlights: “In Lisbon and Porto, there is strong demand for retail spaces. However, the scarcity of supply limits market growth opportunities and brand expansion. Rent pressures are expected to remain, especially in areas like Baixa-Chiado in Lisbon and downtown Porto.”

Larry Brennan, Head of European Retail Agency at Savills, adds: “The recovery of rents on Europe’s prime retail streets is directly linked to the reduction in vacancy rates. Retailers continue to focus on the best spaces, of which supply is increasingly limited. We expect this demand to remain dynamic, supported by strategies integrating physical stores into business models.”

This resurgence in demand is accompanied by a rise in investment in European retail, which saw a 6% increase in transaction volume year-to-date through Q3, totalling €19 billion. In Portugal, it is important to note that the investment value achieved is strongly anchored in the sale of Alegro Montijo, transacted for €178 million, representing more than half of the total transaction volume for Q3 2024.

Savills projects that, across Europe, Q4 2024 will reach €8.5 billion, bringing the total annual volume to around €27.5 billion, a 15% increase compared to 2023. This positive outlook reflects renewed confidence in the retail market, driven by the solid recovery of prime retail streets across Europe.”