The pandemic outbreak, the surge in online sales and now the inflation climate are all challenges shaking the retail sector which has seen the number of street premises decrease over the past years and space repurposed to other uses as CoStar data shows.
In Madrid, the number of street retail units is 3% below 2019 level after growing by only 0.3% in 2022 to just over 97,000 units according to the city government's premises census.
Private investors are taking the opportunity to convert empty premises into residential units. In 2022, over 8,000 units were used as residential versus 6,500 units in 2019. The trend is expected to continue driven by the shortage of residential supply to meet the existing demand. Conversions are mainly taking place in non-prime retail areas such as Puente de Vallecas district which has 13% of converted units compared with only 1% in Salamanca district, the main luxury retail area.
Changes in tenant mix are also emerging. Retailers still account for the majority, followed by food and beverage. But healthcare and education providers have grown their presence above pre-pandemic levels and are expected to still develop over the coming years driven by sociodemographic changes. These are mainly in-person activities less affected by e-commerce.
Among the latest transactions, a stand-out is the lease in October 2022 of over 800 square metres by the aesthetic medical clinic Robega in Plaza España 14, one of the main tourist locations in Madrid.
Despite the negative evolution, the outlook is positive for fashion prime retail as confirmed by the transactions that took place in 2022 in Madrid’s main shopping streets with fashion brands continuing to open large flagship stores.
Inditex opened its largest shop in the world for its Zara and Stradivarius brands in Madrid's Plaza de España in April, at 7,700 square metres.
Uniqlo, the Japanese fashion retailer, opened its second shop in Madrid in October, making it the company's largest shop in the Spanish market, with a surface area of more than 2,000 square metres. Located in a landmark building at Gran Vía 37, the new shop positions the brand as a new shopping destination on one of the busiest streets in Europe.
Finally, Primark will open a new flagship store this year at number 8 Conde de Peñalver street, located in the heart of the Salamanca district.
As well, new store concepts are emerging like Wow, an immersive space, that melds the physical and digital worlds, and which is set to open a new location on Madrid's Serrano street this year after opening 5,500 square metres in Gran Vía. That store has a 3D-printed marine landscape and augmented reality integration that "blends tech with nature." on the ground floor, then cosmetics, clothing, footwear and homeware, all blending digital and physical space.
Despite concerns regarding the impact of high inflation on consumer confidence and consumption, retail spending in Madrid is expected to increase by 1.6%, in real terms, in 2023 according to Oxford Economics. The recovery of international tourism and national consumer footfall is likely to keep driving demand for prime retail in the city.