Colliers International has recently analysed select city retail markets within Eastern Europe for the first half of 2013 including Belgrade, Budapest, Bucharest, Bratislava, Kyiv, Moscow, Prague, Sofia, St Petersburg, Warsaw and Zagreb.

Rapid growth in retail sales within Russia and Ukraine has triggered a rise in development activity within Moscow, St Petersburg and Kyiv as tenants begin to compete for space. 

Around 85 per cent of all Eastern European retail construction is occurring within Moscow, St Petersburg and Kyiv markets and the level of construction is significantly higher than last year; by at least 45 per cent.

While Moscow holds the lion’s share, there has also been a significant increase in development activity within St Petersburg and Kyiv city markets. The stand out market is Kyiv, which now has approximately 707,900 sq m under construction compared to just 180,000 sq m the same time last year. 

The other city markets have limited new stock in the pipeline and together only account for approximately 6.8 per cent of the total retail stock under construction; this includes Prague, Zagreb, Belgrade, Budapest, Warsaw, Bucharest and Bratislava. Sofia has a 4.7 per cent share of upcoming stock in the pipeline, St Petersburg 17.7 per cent, Kyiv 27.8 per cent and Moscow 43.1 per cent. 

Retail spending continues to recover in Poland, Romania, Serbia and Slovakia. It is contracting in Hungary and remains weak in Bulgaria, Croatia and the Czech Republic. 

As a result, most city markets have been forced into a period of consolidation and this has seen overall prime rents stabilise. 

“Although rents seem to be in a holding pattern, there are isolated pockets where rents have declined, including average drop of 20 per cent in prime high street rents in Sofia and Kyiv and a decline of 9 per cent, 19 per cent and 8 per cent respectively in traditional shopping centre rents within Sofia, Kyiv and Zagreb.” commented Damian Harrington, Regional Director of Research for Colliers International, Eastern Europe.
 
Despite the high retail spend growth in Kyiv, the exceptionally high number of developments in the pipeline together with the recent opening of large-scale shopping centres such as Ocean Plaza, have increased competition in the marketplace and put downward pressure on rents in the short term for both traditional shopping centres and high street locations. 

The report found that retail shopping centre stock per capita is the highest in Zagreb at 789 sq m for every 1,000 persons, followed by 708 sq m in Bratislava and 655 sq m in Prague, compared to lows of 241 sq m in Moscow and 187 sq m in Belgrade. The overall average for these 11 city markets is 460 sq m. 

The high stock per capita readings in Zagreb, Bratislava and Prague suggest the markets are at near capacity. It is possible that those sitting below the average level have some scope for expansion through development. 

However, Eastern European markets are yet to fully witness or indeed understand the impact of e-tailing. If the UK market is anything to go by, the impact will be significant with the high street most at risk from a decline in traditional retailer demand. Given the lack of a significant retail high-street presence in most Eastern European cities the impact may be more muted than in Western Europe, but there is a definitive risk that there will be downward pressure on the demand for retail space in years to come. 

The full infographic can be found here.