CBRE: The retail sector, a magnet for investment

Mihai-Alexandru Cristea 25/07/2023 | 14:51

The retail sector attracted 21% of the total investment volume recorded in the first half of 2023, 7% higher than the same period last year, remaining around €39 million. Thus, retail moves up into the top 3 in terms of investors’ interest, along with the industrial sector (33%) and offices (29%). At the same time, hotels remain in fourth place, with an investment share of 17%, according to data from CBRE, the global leader in the commercial services and real estate investment market.

 

The total stock of modern retail spaces in Romania reached 4.15 million square meters. Out of the total stock, the share of retail parks is constantly increasing, reaching a percentage of 39% at the end of the first semester of 2023.

In the first half of the current year, eight small and medium-sized commercial projects were delivered, and only one is located in Bucharest. Their total area adds up to ​​69,300 sqm. Another 235,000 sqm were under construction in the first half of the year and are expected to be delivered in the second half of 2023. Of the total volume announced for the second semester, 63% is represented by retail park developments. Regarding the location, 99% of the total area will be delivered in regional cities, consolidating the current trends.

“The retail spaces market finds itself in an ongoing transformation process that started in 2020. Currently, we observe a continuous tendency towards specialized and traditional formats reaching a balance. Small and medium-sized centers, but with better coverage across regions, are becoming preferred formats by investors or developers. This doesn’t mean either that malls are not still successful, or have great sales, as they continue to be a favorite choice in consumers’ preferences, but building a mall from scratch requires much more resources, both financial and know-how. Particular attention is also paid to ESG regulations. Thus, a lower carbon footprint and also a more sustainable approach are both used as differentiation factors, especially as consumers are now much more aware and attentive to environmental effects,” stated Carmen Ravon, Head of Retail Occupier CEE, CBRE.

Fewer investments in real estate, in the first half of the year

The investment volume in the real estate market in the first half of the year dropped to 183.8 million euros. The current value got 43% lower compared to the same period last year, not to ignore that Romania’s economy is also expected to slow down its growth rate in 2023 to an approximate 2.2%, after three years of continuous progress. Moreover, no more than 74% of these investments were made in the 1st quarter alone.

There are premises for this year, that industrial & logistics spaces along with retail reached the first places at the top of the biggest investments on the local commercial real estate market. The highest demand is generated in the retail sector, as more and more investors are attracted by the stability offered by this asset class,” stated Mihai Pătrulescu, Head of Investment Properties, CBRE Romania.

At the level of CBRE’s retail asset portfolio, throughout the entire region, the footfall in shopping centers was increasing at the end of 2022, at only 7% below the level recorded in the same month of 2019. Overall, the trend is one of recovery, as can be seen after the first half of 2023. Tenant sales increased by 5% in the same period.

Confidence in retail remains high

On an upward trend starting in 2020,  private consumption in Romania is forecasted to grow in 2023 and 2024, but with modest yearly increases, of 3.2%, and 2.9. These increases are based on shoppers being mindful of their spending. At the same time, prices continue to experience fluctuations in raw material costs and are affected by inflation. The good news comes for the year 2025 when a more significant annual growth of 5.1% is expected.

CPI (consumer price index) inflation in 2023 is estimated to reach 10.3%, 3.5% lower than the 2022 value – the highest recorded in recent years. The decrease has been driven mainly by lower fuel and electricity prices. Also, forecasts for 2024 and 2025 indicate a drop to 5.1% and even further to 2.7%.

Buyers’ confidence is also mirrored in macroeconomic indicators, such as retail spending, that maintain a positive dynamic. After the fulminant increases in 2021, the value of this indicator dropped last year, and for 2023 a slight increase of 2.3% is estimated at the national level, respectively 2.5% for the Bucharest-Ilfov region.

“The stock of modern retail spaces is estimated to reach 4.39 million sqm by the end of 2024. At the same time, retail parks and inner-city shopping centers are only 10% below their pre-pandemic level in terms of traffic, which shows us a strong consumer appetite for physical modern retail formats. This evolution was initially generated by retail parks, due to their focus on sales campaigns based on special offers, but 2022 also demonstrated a return of traffic at the same level for large shopping centers (malls), especially due to leisure options,” explained Daniela Gavril, Head of Research, CBRE Romania.

The prospects of the market and investments in real estate are positive, given that in the next two years the economic forecasts indicate a more accelerated growth trend of the economy, of 3.6% in 2024, and 4% in 2025.Growth estimates are based on European funds, such as those from the National Recovery and Resilience Plan (PNRR), which will represent an important source of financing for Romania’s economy, according to CBRE and Oxford Economics data.

Czech and Romanian investors contributed the most to the investment activity from 2023, having similar shares in the investment volumes, of 33% and 32%, respectively. The other investors who chose Romania, with a common share of 35%, are those from Lithuania, Cyprus, the USA, and Israel.

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