Increased development, increased competition, dynamic scaling of retail networks and other trends that will determine the development of the Ukrainian retail market in 2020.
Retail is one of the most capacious and dynamically developing industries in Ukraine. The largest players in the retail market are actively developing retail chains, more and more international brands are emerging in the country, and developers are developing new sites for the construction of shopping centers. What to expect from the retail real estate market this year and what are the main trends that will affect its development?
Active development of retail networks
In the last few years, both local and foreign retail operators have been dynamically scaling in Ukraine. Among the most active international players in the Ukrainian market are the Turkish network LC Waikiki and the Polish group LPP, which manages the brands Reserved, House, Mohito, Cropp and SinSay. And among the Ukrainian ones - Intertop Ukraine, Vovk fashion brand and Silpo supermarket chain, which is increasingly included in the number of anchor tenants of shopping centers.
The revitalization of retailers is not surprising: the growth of the Ukrainian economy and the increase in real incomes of citizens have a positive impact on the sales of stores. In turn, the growth of sales network revenues is reinvested in scaling business and strengthening market positions.
One example is the EVA and Varus brands of Ukrainian businessman Ruslan Shostak. Last year, they grew by 219 and 15 stores, respectively, and their total turnover for the first time exceeded $ 1 billion. In 2020, they will continue to develop actively, as well as other major retail companies.
New retail operators
Along with the players on the market, more and more international brands are emerging in the country in recent years. In 2018, the Swedish H&M department store, the Turkish Koton and De Facto, the Spanish home-goods brand Zara Home and the Japanese Usupso, came directly to Ukraine. In 2019, the pace of new brands in Ukraine slowed down a bit: only one major international player - the French Decathlon - has opened in the country, which has already opened two stores in Kiev.
However, the global retailers' substantive interest in Ukraine persists, and in 2020, one of the most anticipated Ukrainian brands - Swedish Ikea - is expected in the country. In the event of a steady growth of the Ukrainian economy, Ikea's example may be followed by other retailers that are not yet available in the local market.
Shortage of retail space
Large-scale retailer expansion plans have naturally led to increased demand for retail space. As a result, vacancy rates in Ukraine's most popular shopping and leisure centers were at a record low. In particular, the developer company Arricano, which manages four shopping centers in Kiev and the regions of the country, declared the achievement of occupancy of its facilities by 99.9%. Low vacancy was recorded in the capital objects of the investment company Dragon Capital: Shopping Center Pyramid - 0%, Shopping Mall Aladdin - 1%.
At the same time, large waiting lists were formed in almost all the largest malls of the country. This tendency is especially noticeable in the regions of Ukraine, where in recent years practically no new large shopping centers have been opened. In 2020, the shortage of retail space in regional markets will remain, while in Kiev with the large-scale commissioning of new large shopping and entertainment centers, the situation may change.
Rental rates increase
The shortage of high-quality commercial real estate, amid increased demand from retailers, has allowed Ukrainian developers to raise rental rates. In the most popular shopping malls in Ukraine, the cost of rent in dollar terms increased by an average of 20-25%. Market conditions enable management companies to dictate their terms and quickly fill vacant locations when tenants exit, or their reluctance to cooperate on new terms.
Rental rates may continue to rise this year. This is especially true of Ukrainian cities-millionaires, in which the new supply of retail space will be extremely limited - Lviv, Odessa and Dnipro. As for Kiev, one should expect some stabilization of the average level of rental rates. First of all - due to the large volume of new supply that is being prepared for launch.
Activation of development
In the context of increased rental income, it can be noted activation of real estate activity. Last year, more than 300,000 square meters were put into operation in Ukraine. m of new retail space. The largest shopping malls opened last year were Kiev Blockbuster Mall with a lease area of about 100 thousand square meters. m, and River Mall with an area of в 55 ‹в 55‹ almost 55 thousand square meters. m GLA. However, the next two years may become even richer for new retail outlets.
According to our estimates, if the developers adhere to the stated terms of commissioning, in 2020-2021 the Ukrainian market may reach a record volume of new retail space - more than 700 thousand square meters. m. The largest shopping malls that can open in the coming years are the capital shopping malls Respublika (139 thousand square meters GLA), Ocean Mall (84 thousand square meters GLA), Retroville shopping mall (77 thousand square meters GLA) and second place Rive Gauche (55 thousand square meters M GLA), as well as Kharkiv shopping mall Nikolsky (52 thousand square meters M GLA) and Zaporozhye Alexander Plaza (48 thousand square meters GLA).
A good concept and a good pool of tenants will not be enough. The entertainment component and the food court will play an increasing role in attracting traffic to the mall.
The opening of new large shopping malls will naturally lead to increased competition in the commercial real estate market. Especially in Kiev, where the largest volume of the new offer is expected. The population of the capital and the purchasing power of the residents of Kiev are not growing as significantly as the volume of the commercial real estate market, so the redistribution of flows of buyers between existing and new shopping centers is inevitable.
In such circumstances, developers will have to fight more actively to attract customers and increase marketing budgets. A good concept and a good pool of tenants will not be enough. An increasing role in attracting traffic to the mall will be played by the entertainment component and the food court. This trend is already evident in Ukraine as well as in other world markets. The share of entertaining and food operators in the structure of tenants of the mall will continue to grow in 2020.
Reconception of obsolete objects
The opening of new modern shopping malls will have the greatest impact on the work of outdated shopping malls, opened 10 years or more ago. To minimize the outflow of visitors, they will need to invest in upgrading and reconcepting their facilities. Otherwise, they run the risk of leasing out and significantly reducing their profitability. However, many market participants understand this and are already taking the necessary steps to hold positions.
Last year, Dragon Capital actively updated the capital's shopping centers Aladdin and Piramida, as well as the Sky Park in Vinnytsia. It is expected that this year the investment company will start construction of the second stage of the shopping center Piramida, which will allow to attract entertainment operators to the mall and create a full-fledged food court. Significant changes in the concept and tennant mix are also taking place at Kiev's Dream Town Mall. And the capital's shopping center Caravan, which at one time was one of the most successful shopping centers in the country, was forced to carry out a full reconcept, and at the end of 2019 to restart in the format outlet.
As competition grows, upgrading other retail outlets will be inevitable. Those who cannot meet the new consumer requirements and market conditions will be forced to leave.