Retail projects totaling around 340,000 sqm are currently under construction across Romania, most of them located outside Bucharest, in cities such as Craiova, Alba Iulia, Arad, or Sibiu. While footfall in shopping centers and retail parks has returned to pre-pandemic levels, development trends are seeing players exploring smaller-scale projects in secondary and tertiary cities.
By Ovidiu Posirca
In 2023, the total new annual supply is due to reach around 250,000-270,000 sqm of leasable space, provided that developers manage to complete all their announced projects. In Bucharest, the single largest delivery will be Cosmopolis Plaza, which spans 16,300 sqm. All in all, the local retail market will close this year with a total stock of 4.45 million sqm.
Next year, new retail projects totaling another 200,000 sqm are expected on the market, according to consultants.
“This year we’re seeing a comeback of the shopping malls, with projects such as Promenada Mall in Craiova, developed by NEPI Rockcastle, and Alba Iulia Mall, developed by Prime Kapital. The development of retail parks will also continue in parallel,” says Alexandru David, head of research at JLL Romania.
NEPI Rockcastle’s mall in Craiova will have around 64,000 sqm of leasable space and will be the largest retail project in this city, slated for completion this fall.
Liana Dumitru, retail agency director at Colliers, points out that despite this increase in appetite for larger deliveries, the bulk of new deliveries are still expected to come via retail parks, with activity in small and medium-sized cities to remain at all-time highs. In fact, new deliveries in cities with populations below 100,000-150,000 stand at record levels even when compared to the previous 2005-2008 boom.
“As for Bucharest, we are seeing an increase in activity, with the expansion of Promenada Mall being the biggest project thus far; that said, there is still potential for some bigger projects popping up sooner or later,” Dumitru adds.
The slow permitting process in Bucharest has also had an impact on investors’ willingness to plan new projects in the city. Nevertheless, retail developments are starting to get embedded into large scale retail schemes, which in turn are becoming complex mixed-use schemes in a bid to accommodate new demand patterns from residents and tenant companies.
Market consultants point out that the resurgence of large-scale shopping malls in regional cities is evident both from the point of view of retailers’ sales as well as from their interest in opening stores in such locations.
“Romania boasts one of the lowest vacancy rates in the EMEA region, which can be advantageous as it ensures income generation from leased areas. However, this also poses challenges for brands seeking to expand beyond Bucharest, and it compels landlords to continuously offer new shopping experiences by refreshing the tenant mix with new brands,” says Carmen Ravon, head of retail occupiers for the CEE region at CBRE.
Retail Continues to Attract Significant Investment
Close to EUR 39 billion has been invested in the 12 months ending with Q1 2023 in European retail real estate, according to a report by BNP Paribas Real Estate. A sector breakdown in six European countries (Germany, UK, France, Spain, Italy, and Poland) shows that shopping centres recorded a surge of 56 percent in new investment year-on-year, while high street projects saw a 38 percent gain in fresh investment. Meanwhile, retail warehousing had recorded a 30 percent decline in investment by the end of Q1 2023.
“Most countries have witnessed an expansion in yields for retail assets, but not as much as for other property types. This is mainly due to the repricing that occurred during the covid-19 crisis, when the retail sector was hit harder than other segments,” BNP Paribas experts wrote in the report.
In Romania, prime yields for retail projects stands at 6.75%, while the prime monthly rent averages at EUR 80/sqm, according to a report by Cushman & Wakefield Echinox.
High Inflation Could Hit Retail Sales This Year
Romania is set to return to single-digit inflation in Q3 2023, a significant drop from the 15.9% inflation recorded in the same period of 2022. High inflation has affected most European consumers, who have been paying more for products and services.
BNP Paribas Real Estate experts also point out that although inflation is set to decelerate by the end of 2023, a more persistent core inflation may continue into 2024.
“Overall retail sales could decline in 2023 as lower consumer purchasing power roils forward into the new year. This is likely to concentrate in the midmarket segment, as the greatest operational difficulties lie with the ‘squeezed middle’ products, perceived as neither as discount nor luxury,” they argue.
On the local market, private consumption grew last year by 4.4 percent despite the sharp increase in inflation and the eroded purchasing power. Compared to 2021, the growth rate of private consumption shrank by 50 percent, according to the National Institute of Statistics (INS).