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The report delves much further into these trends by reviewing each of the sub-regions of Eastern Europe, the buyers, how ownership is structured, investment holding period, the evolution of stock and the impact of e-tailing on these trends.
While the traditional Central Eastern Europe markets, namely Warsaw, Budapest, Prague and Bratislava, have been considered a safe haven for investment, other sub-regions are quickly climbing up the ladder.
During the last seven years a significant amount of capital has been redirected into the sub-regions of Eastern Europe, Russia and Ukraine, indicating that there is a high level of demand for core and core plus assets in these locations.
Sean Briggs, Colliers International Managing Director of Retail Agency for Eastern Europe said:
“Dominant markets within Eastern Europe’s sub-region of Russia, and to a lesser extent the Ukraine, provide a solid foundation on a number of fronts, with retail in these countries specifically underpinned by a large population, increasing purchasing power and robust consumer spending.”
Retailers are developing and launching new concepts and becoming skilled at expanding retail distribution channels in these new markets. The potential for growth into Russia and the Ukraine has become a significant interest to many major retailers.
They have been pursuing growth strategies in existing markets as well as new markets within Eastern Europe since the mid-2000s. Although many retailers haven’t gained the same foothold they hold in the mature markets, this is changing with the current levels of new retail shopping centre construction underway representative of this increase in demand.
Examples of retail expansion include H&M, who after opening their first store in Moscow in 2009 had expanded to 37 stores by 2012. Inditex (Zara, Pull & Bear, Bershka, Stradivarius, Massimo Dutti) first entered Moscow in 2003 and now has more than 350 stores across Russia. Polish retailer LPP has projected that their net increase in floor space in Russia and the Ukraine will grow by more than 50 per cent by the end of the year.
With the market growing, potential for investment has also risen and opportunistic investors and developers have been quick to move into the fold. This is reflected by retail investment activity since 2006, which shows the increasing importance of the markets in the Eastern European sub-region, Russia and to a lesser extent, the Ukraine.
The evolution of shopping centre space across the region has responded naturally to this demand with a shift in locational trends from the markets of Central Eastern sub-region, Poland, Hungary, the Czech Republic and Slovakia, towards the East, Russia and Ukraine.
From 1998 to 2002, the Central Eastern European markets not only held the majority share in terms of development activity but these locations were also the most active in terms of investment transactional activity. Between 2006 and 2009, almost 60 per cent of all major retail investment transactions occurred within the Central Eastern Europe sub-region.
Damian Harrington, Regional Director, Research & Consulting, Eastern Europe Regional Team commented:
“From a development point of view, activity in the Central Eastern Europe sub-regions, began to moderate well before the crisis in 2009, while investment remained buoyant until the crisis when it retracted marginally before trending upwards again from 2010. Post crisis, Central Eastern Europe’s share of all major retail transactions declined from 57 per cent to 49 per cent, while Eastern Europe’s share has increased from 25 per cent to 43 per cent.”
It was in the early 2000s that developers began actively targeting the Eastern Europe sub-regions of Moscow and St Petersburg. While there was some activity in Kiev, a more aggressive development market wasn’t witnessed until after the crisis.
In response to the new development, most noticeably from 2006 onwards, investors became increasingly focused on expanding their portfolios to include dominant centres in the sub-regional markets of Moscow, St Petersburg and Kiev.
Entering the market either directly or through capital partnership/joint venture structures, most investors are seeking out dominant shopping centre assets of core and core plus standard, with less demand for secondary centres in these locations.
As a result, more investor types are increasingly participating in partial or joint venture opportunities in the big shopping centres to not only increase purchasing power but to accelerate entry into some of the fastest growing centres of Eastern Europe as well sustain entry into mature markets of the Central Eastern Europe.
Joint venture partnerships account for approximately 20% of all major schemes in the region.
The report also found that the geographic spread of owners was structured by region as follows, 39 per cent of owners have assets in Bratislava, Budapest, Prague and Warsaw centres in the Central Eastern sub-regions of Poland, Hungary, Czech Republic and Slovakia; 36 per cent own assets within the Eastern Europe sub-region cities of Moscow, St Petersburg and Kiev and 21 per cent have assets in South East Europe sub-region cities of Belgrade, Bucharest, Sofia and Zagreb.