Modern retail spaces maintain steady pace of development

Modern retail spaces in Romania have had a significant evolution over the past 20 years. More than 40 cities in our country have at least one large-scale shopping centre or retail park, and the total number of these spaces reaches 135, according to an analysis by Cushman & Wakefield Echinox. But there is still room for growth, as the total stock of modern commercial space relative to the number of inhabitants is still far below that of Western Europe or even countries like the Czech Republic or Poland.

By Aurel Constantin

More precisely, Romania has a total stock of 4.2 million square metres of modern retail space, where about 70 percent of the total retail trade in our country takes place, while the Czech Republic and Poland have more than double that figure. A study by Colliers shows that 60 percent of the stock of modern commer- cial spaces is located in the ten largest cities in Romania, all with more than 200,000 inhabitants, which points to uneven regional development. Unfortunately, the development of commercial spaces is closely related to the population’s median income level, the quality of the transport infrastructure, and the economic performance of the region. It is no surprise that the owners of malls or retail parks have first gone to cities where there is a critical mass for consumption and only later started to look at uncovered areas.

Logistics hubs are currently being developed around smaller towns such as Turda in order to meet demand for online retail, which has seen growth in recent years from small towns and rural areas as well. Approximately 100,000 sqm of retail spaces were delivered last year, with retail parks having an 80 percent share, with cities such as Bucharest, Timisoara, Pitesti, Turda, Baia Mare, Slatina, and Miercurea Ciuc benefitting from such investments. The new supply will significantly increase in 2023, as over 230,000 sqm of retail spaces are currently under construction and due to be completed by the end of the year, a total which would represent a record the year, according to data from the major market players. Prime Kapital – MAS Real Estate, NEPI Rockcastle, Scallier, AFI Europe or Oasis remain some of the most active developers of such properties on the short and medium term, which shows that the local market remains attractive even in the face of macroeconomic pressures. On the other hand, the overall appetite for consumption in Romania has encouraged new retailers such as Primark, Popeyes, TEDi or HalfPrice to for the last six years, according to data from real estate consultancy Cushman & Wakefield Echinox.

“Central banks injected record amounts of money into the economy in 2020 and 2021, while keeping interest rates at very low levels. These measures had also been preceded by a very long period of quantitative easing and very low interest rates. 2022 brought a radical change to this paradigm, with inflation and rising interest rates, and therefore with a reduced appetite for not-sosecure investments. The banking system has been impacted too, with several banks in the United States dealing with bankruptcy, and the system’s reaction has translated into increased caution towards real estate financing. However, the Romanian commercial property market has remained stable, with limited adjustments to capitalisation rates, which, due to the more pronounced growth recorded in other countries, have started to close the gap with yields in Central and Eastern Europe,” said Bogdan Sergentu, Head of Valuation & Consultancy at Cushman & Wakefield Echinox.

Development activity in the 2023-2025 period will be dominated by shopping centres, which have a share of more than 60 percent of the new spaces expected to be built nationwide by 2025. This comes after a few years in which developers' attention was focused on retail parks, which accounted for more than 80 percent of new deliveries. “2022’s new supply and the plans for the next three years prove once again that traditional retail will continue to play a key role in the overall real estate landscape. This can primarily be explained by the fact that malls, retail parks or commercial galleries are no longer just shopping destinations,” says Dana Radoveanu, Head of the Retail Agency at Cushman & Wakefield Echinox.

Almost 600,000 sqm of retail spaces are currently in various planning stages and are expected to be delivered between 2023 and 2025. Around 40 percent of this pipeline is likely to be completed by the end of enter the country and open their first stores in 2022.

Even the mayor of Bucharest’s Sector 3, Robert Negoita, announced that he was looking to build a mall on the space of the Laminor hall, a historical monument building. The municipality would invest RON 53 million in addition to the RON 400 million that have already been spent on this construction. A draft decision provides for the association of the Algorithm Constructii S3 company, which owns the Laminor hall, and the Sector 3 Local Council in order to complete the project.

Commercial Property Market Remains Stable

While high inflation and rising interest rates have increased banks’ caution when it comes to financing the real estate sector, Romania’s commercial property market has maintained its stability. In a context where the upward movement of yields in the region has been more pronounced, there has also been a decrease in the gap between local benchmarks and other CEE markets.

The commercial real estate market (office, retail, and industrial projects) is still undergoing a period of price recalibration. Lower liquidity is a natural result of these periods of uncertainty. Sellers are reluctant to dispose of their assets at a discount and they tend to hold on to their properties until they have a clearer view of the general market outlook or until they are forced into a sale, which happens very rarely. Buyers also want the rising financing costs to be reflected in the pricing. This results in a mismatch between buyers and sellers, which tends to drive down the number of transactions.

The retail segment appears to be doing well, with increases recorded in sales and turnover, coupled with a significant growth of both rental and operational expenses on the backdrop of inflationary pressures.

Looking ahead, the second half of 2023 should not bring significant differences, but inflation may begin to decline, albeit slowly, allowing the real wage growth to resume, and therefore consumer confidence—and subsequently consumer spending—should also see some improvement.