It’s profitability, stupid
Retail & leisureThe potential profitability of a site, rather than the occupational costs continues to be the most important factor in the decisions of retail tenants to enter new locations in key European markets, according to the “The real cost of setting up shop” report by Colliers International. High-profile retail cities such London, Paris and Milan, which can guarantee high footfall and turnover rates, attract occupiers despite high rents and high taxes. Paul Souber, the head of the retail agency at Colliers International, explains that “It is clear that retailers weigh up total occupancy costs relative to the actual and potential amount shoppers spend in a specific market, when they focus on where they can derive the best value from their physical retail presence in relation to cost. So, despite the high occupancy costs incurred by retailers in key tourist and business cities such as London – which was the world’s most visited city in 2015, where international tourists spent over USD 20 bln – it remains the top choice destination for international retailers, given the potential for high volumes of retail spending.” He points out that while property market experts tend to focus on rental levels when comparing competing retail locations, retailers actually need to take into consideration the total occupancy cost – including local taxes, labour costs, service charges and marketing fees. Meanwhile, local taxes alone may differ widely from country to country. Poland has a new retail sales tax that was introduced on September 1 st this year and is expected to raise the operational costs for retail chains in the country. According to Katarzyna Michnikowska, a senior analyst for research and consultancy services, at Colliers International, on the one hand, the tax could slow down retail chain expansion and consolidation, but on the other hand it could accelerate multi-channel sales as the burden will not apply to online sales. “In the long term, the new tax will certainly have an impact on the financial results of retail chains and the performance of shopping centres in Poland,” says Michnikowska. However, as Souber points out, “In any location, it is the profitability that ultimately guides retailers. In terms of the total retail occupancy cost, it would be interesting to see what level rents in cities with high occupancy costs would rise to, if freed of the burden of additional local costs and taxes.”
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