International Retailers Crowd into CEE as Economic Growth and Household Consumption Outpace Western European Markets

Rising disposable incomes across Central and Eastern European markets are outpacing those in more mature Western European economies and driving a more dynamic tempo of consumer spending in a region under-supplied with modern retail space, NEPI Rockcastle, Europe’s third-largest listed retail real estate company by portfolio size, concluded in its recent third-quarter financial results. NEPI Rockcastle is the biggest owner, operator and developer of shopping centres across CEE and is experiencing a robust uplift in net operating income as international and local retailers expand in the region to capture a growing cohort of more affluent consumers and higher margins in these markets.   

“Retail markets across CEE rebounded robustly after the pandemic, and economic growth and consumer consumption in our major markets are significantly stronger than in Western European countries. This is driving higher turnover and margins for tenants in NEPI Rockcastle’s close to 60 shopping centres across the region and attracting new international retailer entrants to these markets, or encouraging brands that are already present to expand their operations.” Marek Noetzel, NEPI Rockcastle’s Chief Operating Officer, commented at the MAPIC retail trade fair in Cannes.

On 16^th November 2023, NEPI Rockcastle reported a 23% increase in net operating income to €365 million in the nine months to September 2023 (as compared to the same period 2022), mainly driven by a combination of strong tenant sales performance and the contribution of acquisitions completed in 2022. In the first nine months of 2023, NEPI Rockcastle signed 882 new leases and lease renewals, for more than 188,200 sqm, of which 42% by gross lettable area (GLA) are new leases. International brands accounted for 58% of newly leased GLA. 

Notable new lettings include the world’s largest fashion retailer, Inditex, which recently chose NEPI Rockcastle’s newest development, Promenada Craiova in central southern Romania, for the opening of a 4,200 sqm Lefties store, its first location for the brand in CEE. In addition, more than 40 international brands chose the new development as the destination for their expansion in the region. These include Bershka, Calvin Klein, Massimo Dutti, Mohito, Peek & Cloppenburg, Stradivarius, Tommy Hilfiger, Under Armour and Zara – all of which are opening for the first time in Craiova. Promenada Craiova is an 80,000 sqm retail scheme comprising a 53,250 sqm GLA shopping centre and an adjacent 10,350 sqm GLA retail park. The retail scheme also incorporates a 16,000 sqm GLA DIY store, owned by Dedeman. On its first day of trading, 55,000 visitors swamped the malls to visit the 120 brands opening.

Other international retailers new to the NEPI Rockcastle portfolio in the past two years include:

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The development activity in the retail market remains animated: Close to 215,000 sq. m were delivered in 2023

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• Irish value retailer Primark, which opened a 3,800 sqm store in Bonarka shopping centre in Krakow, Poland last year and will be opening its first store in Hungary in Arena Mall, Budapest in 2024. 
• Australian jewellery brand Lovisa debuted in a 60 sqm store in Mega Mall, Bucharest.
• Digital native brands Epantofi, a Polish online footwear retailer, and Modivo, one of Europe’s leading online retailers of clothes, footwear and accessories, also chose Mega Mall to launch physical stores, taking 1,800 sqm.

Existing international brands that are growing strongly in the region include:

• Spanish brand Zara, which upgraded and enlarged its stores at Paradise Center in Sofia, Bulgaria and City Park Constanta in Romania with its latest retail concept, as well as opening at Promenada Craiova.
• British brand JD Sports opened new stores in Mega Mall, Shopping City Timisoara in West Romania and Focus Mall Zielona Gora in Poland.
• German retailer Douglas has taken new stores in Shopping City Deva and Shopping City Targu Jiu in Romania for its perfumery stores.
• Sportswear brands Adidas and Nike with new stores at Promenada Craiova, Romania and Bonarka City Center, Poland.A refurbishment of Bonarka is underway and the last stage of works in the mall is due to start in Q1 2024.
• Mango opened a new store in Paradise Center, Bulgaria.

Regional brands expanding include:

• Polish brand Reserved, which opened in Paradise Center, Bulgaria, enlarged and refurbished its store in Serdika Center, Bulgaria and opened new stores in Karolinka Shopping Centre and Galeria Wolomin in Poland andPloiesti Shopping City in Romania.
• Half Price, the fashion off-price retailer, opened new stores in Mammut Shopping Centre in Budapest, Bonarka, Karolinka Shopping Center, Alfa Centrum Bialystok and Focus Mall Piotrkow in Poland, and Shopping City Sibiu in Romania.
• Sinsay has new stores in Ozas Shopping and Entertainment Centre in Vilnius, Lithuania, and Braila Mall in Romania.
• 4F, the sports clothing retailer, is expanding rapidly across the region and has taken four new stores in City Park Constanta, Shopping City Deva, Braila Mall and Ploiesti Shopping City, and enlarged and refurbished its Mega Mall store. 

“The multitude of international and regional retailers opening and expanding across our retail portfolio is indicative of how compelling the CEE markets are right now compared to the more mature and saturated Western European retail markets. In 2024, average GDP growth across the CEE is forecast to be double that of Western Europe, operating costs have stabilised, and household income and consumer spend are holding up well. These factors present our retailers and other tenants with outstanding opportunities to grow their presence across the region.” Noetzel concluded.