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Central & Eastern European Retail Markets in Restructure and Recovery Mode

Jones Lang LaSalle issues “CEE Retail in 3D” report

Jones Lang LaSalle presented its latest report, released at MAPIC today – ‘CEE Retail in 3D’ – a look into the effects of the economic crisis and how investors, developers and retailers are planning both their current and future activities in Poland, the Czech Republic, Slovakia, Hungary and Romania (CEE5).

According to the report, the CEE5 economies have in no way been immune from the effects of the economic crisis, however, they are expected to grow and gather momentum from 2010 onwards. Mid-term economic forecasts suggest that the CEE5 countries will grow at a higher rate than Western Europe. Although on average retail sales in the CEE5 may be dropping there are markets (including Poland and Romania) where the situation is still relatively healthy. The stability of local currencies against the Euro (with the exception of Slovakia who adopted the Euro on 1st January 2009) will continue to play an important role in the operation of retail networks.

Some retailers are taking painful decisions and actions to survive, as the crisis affects their entire networks across Europe. In some cases this has meant closure of stores or in the worst cases, bankruptcy. On the other hand, this has also created unexpected opportunities for retailers actively pursuing expansion, which are able to take the vacated units in otherwise difficult to obtain centres.

Beatrice Mouton, Director of Retail Leasing and Consulting for Jones Lang LaSalle in CEE, commented: “It is undoubtedly a difficult period for many in retail, however, the CEE5 markets have come a long way already and we believe still have a good future ahead. The CEE5 customer is increasingly sophisticated and craves access to brands and goods, which Western European customers are enjoying in their respective markets. Therefore, the CEE5 markets offer growth in the medium to long term and remain attractive markets to both national and international brands.”

Developers and landlords are also facing increasing pressures as retailers are looking to save costs and/or close their poorer performing stores. This has led to a number of renegotiations, where in many cases the tenant is currently in a stronger position.

Kevin Turpin, Head of Research for Jones Lang LaSalle in CEE, commented: “In terms of new developments and extensions, we estimate that there has been a 30% or 2 million sq m reduction in the shopping centre pipeline compared to 12 months ago across the CEE5. This is in part due to the lack of available financing and difficulties in securing a sufficient number of tenants on pre-lease contracts in order to satisfy stricter bank requirements, before the development loan is granted.  The crisis has, however, delayed or prevented a potential oversupply situation, particularly in some cities where supply is already quite high.”

The retail investment market has also seen some of the lowest activity for a number of years as a result of the crisis and mainly due to the lack of liquidity, rather than investor interest.

Agata Sekula, Director of Retail Capital Markets for Jones Lang LaSalle in CEE, said: “We believe that investor interest is growing and becoming more active in reviewing retail opportunities in the region, but with a clear focus on asset’s retail fundamentals.  A full analysis of location, catchment, tenant mix, competition, historic performance, rent and tenant sustainability is being undertaken prior to official interest being registered. With more liquidity slowly emerging from a range of banks, we feel retail investment in CEE is well placed to benefit over the coming 12 months.”

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