Colliers: 2024 signals increased interest in large mixed-use developments

2023 ended with one of the best results since 2011 in terms of deliveries of new modern retail projects, adding around 220,000 square meters to the total retail surface, more than double compared to the past couple of years, according to the annual report published by Colliers.

For both retailers and shopping center owners, 2023 was also another good year for sales. Meanwhile, Colliers consultants note an increasing shift from retail parks to large retail developments for the upcoming years and performance levels in Romania continue to be one of the highest in the European Union.

The biggest additions in 2023 were NEPI Rockcastle’s mall Promenada Craiova (63,700 square meters), which is also the biggest retail scheme delivered in Romania since 2016’s ParkLake in Bucharest, followed by AFI Europe’s AFI Arad retail park (29,400 square meters) and Prime Kapital/MAS REI’s Carolina Mall in Alba Iulia (28,900 square meter). Overall, the distribution looks much more balanced than in the recent past, with new projects targeting both bigger cities, including Bucharest this time around, as well as smaller towns, with the latter being at the forefront of retailers’ expansion. Colliers consultants mention that they only take into account shopping schemes above a GLA of 5,000 square meters.

Currently, Romania has a total modern retail stock of over 4.3 million square meters, out of which over 2.7 million square meters in shopping centers and the rest mainly in retail parks. Over 60% of the total modern retail area is concentrated in the top 10 largest cities, with above 200,000 inhabitants.

“Starting with the first half of last year, real wage growth, meaning the difference between annual wage and price increases, has returned to positive territory. By the end of 2023, real wage growth of around 9% was already comparable to pre-pandemic levels, which had a positive impact on market and consumer confidence, and thus on retailers’ performance and demand in the retail market. Early indicators of November and December show quite robust results and given how relevant these months tend to be for retailers, it is safe to assume that 2023 was another good year for both retailers and owners. Based on Eurostat data, Romania offers some of the highest gross margins in the EU for a variety of types of goods, from clothing to footwear to toys to pharmaceuticals. While the cost of risk is more significant than in other countries, and this can impact the bottom line when taking out a loan for example, we view this as a sign of a still undersupplied market in terms of retail schemes and a market which can accommodate new players”, points out Liana Dumitru, Director Retail Agency at Colliers.

Still, Colliers consultants note that while the overall feeling is good among various market participants, from customers and retailers to landlords, consumers seem to have become more attentive, as it usually happens at times of heightened uncertainties, and some have moved to a lower price bracket of goods. After years of strong price increases, the discounter segment of the market has continued to perform well in 2023 and it is expected to experience favorable dynamics further on.

Otherwise, the high returns that the local market offers to the retailers, plus the rapid recovery in retail sales, one of the fastest in the EU, has put Romania back on the retail map. Last year saw new brands making their way to Romania, such as Lefties, Jimmy Kay, , Wittchen, or Stefanel (the latter is a re-entry, as the brand exited the market completely back in 2021). While most target the fashion segment, it is not the sole beneficiary of new entries, Colliers consultants note, explaining that the market is attractive for a multitude of segments, meaning new brands should still make their way to Romania, from fashion to food to footwear and so on.

In terms of occupancy, dominant shopping centers and well positioned retail parks retain full or near full occupancy and the newly delivered schemes are generally well received by the market. On the rental side, despite the slowdown in sales, Colliers consultants highlight that sales remain comfortably above pre-pandemic levels.

Looking forward, with less than 90,000 square meters of new modern retail schemes due to be delivered this year, and more than half coming from a single scheme – Arges Mall in Pitesti, it is quite the downgrade from last year and rather comparable to the softer years  immediately following the start of the pandemic. But the outlook remains promising, given that between 2025-2028 a few large and dominant shopping centers are expected to add several hundred thousand GLA to the local retail stock.

Iulius Group’s Cluj-Napoca mall promised initially a GLA of over 100,000 square meters, with a fresh scheme in the same town from the Prime Kapital/MAS REI joint venture to deliver in excess of 70,000 sqm of leasable retail area. In Iasi, the Prime Kapital/MAS REI will also deliver an extension of nearly 60,000 square meters to  Moldova Mall by the end of 2025. There are as well quite a lot of other large projects underway, or where works should commence soon, with a GLA of somewhere between 30,000 to 50,000 square meters each.

However, Romania remains a significantly undersupplied market, not only in comparison with Western European countries, but also with Central and Eastern European countries. For a similar level of consumption (in terms of volume) as in the Czech Republic and Poland, Romania’s modern retail stock per capita is twice as low as in the Czech Republic and more than 40% lower than in Poland. However, while Romania’s real estate segments remain relatively undersupplied compared to other European countries (including those in the region), evidence suggests that the gap is smaller for retail than for office or industrial markets on a relative (per capita) basis.

“Overall, despite the slowdown in new deliveries in 2024 relative to 2023, the medium-term pipeline is not at all a poor one, quite the contrary. In fact, while in previous years the retail parks dominated, many of them targeting small and medium sized cities, we are now seeing developers’ appetite return to larger retail projects, which tend to carry a bigger investment footprint. We also need to acknowledge the rising presence of local capital on the development side, with local businessmen delivering consistently more schemes. In addition, the divestment of Mitiska REIM’s retail park portfolio, as well as potential future sales of this type, could strengthen the “build, lease, sell” model and attract further capital for retail expansion in Romania. Otherwise, the shift in mindset towards bigger projects shows an increased risk appetite and confidence in the country’s longer-term path. There is still room for such sizable shopping in many big cities, including Bucharest, where the problem has been more one of securing adequate land plots with good infrastructure connectivity”, adds Liana Dumitru.

Colliers consultants see favorable medium-term trends for consumers as well. On the one hand, inflation is expected to continue decreasing after ending 2023 at 6.6% and should re-enter to the central bank’s target interval of 1.5-3.5% by the end of next year (fiscal policy permitting). Meanwhile, economic activity is set to accelerate, which should mean job creation, and this in turn will lead employers to pay higher wages in a relatively tight labor market. Overall, Colliers consultants expect an acceleration in retail sales in 2024-2025 relative to 2023.