Retail segment recovering as shoppers crave more human interaction

The end of all pandemic-related restrictions in earlier this year convinced people to go to the shopping mall more often. After two years of covid-19 pandemic, when they did more online shopping, people have been eager to meet and spend time together.

By Aurel Constantin

The largest mall owner in the country, NEPI Rockcastle, expects 2022 sales to be at least at the same level as 2019, which was a good year for Romanian retail. The developer continues to invest locally, where it has projects worth about EUR 400 million under construction.

Sales of tenancy in NEPI Rockcastle malls, excluding hypermarkets, were 53 percent higher in the first quarter of this year than in the first three months of 2021. Sales in February and March were only slightly higher, but still exceeded those achieved in the first quarter of 2019, which indicates a return to the pre-pandemic level.

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NEPI Rockcastle officials expect this year to be at least as good as 2019, a landmark year. “The online market has grown strongly in the last two years, and now we’re seeing a balance. People are bored of shopping online and they want to go out to meet other people. I think they saved money during the pandemic period, and now the market has recovered. As long as there are no other major disruptions, I believe we will return to the 2019 level,” says Rudiger Dany, the new CEO of NEPI Rockcastle.

The company is currently developing six projects, four of which are in Romania. The extension of Promenada Mall in Bucharest, where construction works have started to add 34,000 sqm of additional retail space and a similar surface area for offices, with a total investment value of EUR 280 million. Another major investment, worth over EUR 100 million, is in Craiova. NEPI Rockcastle is also investing in a mixed project in Galati, where it already has a shopping centre. The new retail area will bring an additional 35,000 square metres, according to CFO Eliza Predoiu.

The company is open to new investments in Romania, as it has EUR 1 billion in available liquidity for the entire region, but there are no good opportunities in sight. “We can make purchases, but I don’t see any viable product. I hope prices will fall, but I don’t know when that will happen and whether it will be quick enough. If you look at the purchases of the last two years, the average ticket price in Central and Eastern Europe was EUR 20 million, which for retail is a very small number; our shopping centres go over EUR 100 million. There haven’t been that many transactions in the last two years because no one wanted to sell and everyone was asking for a pandemic discount. Now that the pandemic is over, the market will start offering more opportunities,” said Rüdiger Dany, the CEO of NEPI Rockcastle.

Developers still expanding

Real estate developers continue to expand their retail portfolios in Romania, with over 500,000 sqm of new spaces announced for the next 4 years. Ten of the projects in the pipeline cover more than 10,000 sqm each, according to the Bucharest Retail Market and the Romania Retail Regional Cities reports, produced by Cushman & Wakefield Echinox.

At the regional level, projects totalling 270,000 sqm are under construction or in various planning phases in Romania’s centre-west area, and they will be added to the existing stock of 1.4 million sqm. This area will therefore remain the most developed in terms of modern retail spaces.

Moreover, 137,000 sqm of new spaces are planned for development in the east area, which had a total stock of 610,000 sqm at the end of March 2022, while the corresponding pipeline for the south area (which has a current stock of 842,000 sqm) totals 156,000 sqm.

The city of Resita, with a population of 73,000, is currently the largest city in the country without a modern retail project. However, Nhood has announced plans to develop a 35,000 sqm shopping centre in the coming years, as part of an urban regeneration project. Giurgiu and Alexandria are two other important cities lacking modern retail projects. But Giurgiu will be added to the map this year, through a retail park that Mitiska REIM is developing in the city. No such projects have yet been announced for Alexandria.

Three cities in the country have a density of retail spaces of over 1,000 sqm/1,000 inhabitants, namely Suceava (1,167 sqm/1,000 inhabitants), Oradea (1,047 sqm/1,000 inhabitants), and Deva (1,006 sqm/1,000 inhabitants). The lowest retail space density is currently found in Tulcea and Calarasi, with 70 sqm/1,000 inhabitants and 98 sqm/1,000 inhabitants respectively, even though average net salaries in these towns are higher than those in Suceava, Oradea or Deva. A similar situation can also be observed in large cities such as Cluj-Napoca, Alba Iulia, Craiova, Iasi, and even Bucharest, which have relatively low densities for modern retail spaces, even though the purchasing power in these cities is the highest or among the highest in the country. In Bucharest, spaces totalling 48,400 sqm are currently under construction, namely the Promenada Mall extension in the Floreasca-Barbu-Vacarescu area, Lemon Retail Park in Voluntari, and Greenfield Plaza.

The total stock of retail spaces in Romania reached 4.14 million sqm at the end of Q1 2022, with 2.88 million sqm located outside Bucharest, and 1.26 million sqm inside the capital city.

In Bucharest, the highest retail space density is in the 1st District (758 sqm/1,000 inhabitants), followed by the 6th (655 sqm/1,000 inhabitants) and 3rd (488 sqm/1,000 inhabitants) Districts.

“Almost all developers on the local retail market have announced ambitious investment plans for the coming period, once again showing their confidence in this real estate segment. We’re noticing a diversification of the formats they intend to bring to the market, with new investments being equally directed towards shopping centres and retail parks. In terms of purchasing power and population, there are still important cities that could absorb modern retail schemes if these were adapted accordingly to the existing needs and requirements,” said Bogdan Marcu, Partner in the Retail Agency at Cushman & Wakefield Echinox.

Retail value goes up

Investor interest in retail products has been growing steadily over this past year, focusing on various product categories, such as retail parks or shopping malls, shopping centres in tertiary/secondary cities in need of repositioning or boxes rented to supermarkets or DIY stores. According to Colliers consultants, malls are not available on the market for trading, so investors have shifted to similar alternative products.

Colliers analysts expect to see high interest in any available property of this type. The elimination of pandemic-related rent discounts has had an impact of up to 0.5 percent in the evolution of the market value of shopping malls, they note, with the positive trend also being supported by turnover-based rentals. In the short term, we can talk about an increase in the value of commercial properties, but it remains to be seen how consumption levels will influence the end of the year, when the effects of economic compression will be felt more strongly.

“Other major factors that can impact the value of mall-type real estate are related to the evolution of lending, interest rates, inflation, and utility costs. Consumer credit increased in the first quarter of this year by about 12 percent compared to the same period of last year, largely in line with inflation,” says Raluca Buciuc, Director and Partner of Valuation and Advisory Services at Colliers.