CEO of RDA Andrii Lototskyi about traffic trends of malls in different regions and factors affecting the market

CEO of Retail & Development Advisor Andriy Lototskyi about shopping center traffic trends in different regions, the dynamics of changes in rental payments across regions, retailers' turnover and factors affecting the market.
In 2022, there were four key periods that had the greatest impact on the commercial real estate and retail market:
  • March-April 2022 is a period of active population migration
  • April 2022 – liberation of Kyiv Oblast
  • September 2022 – liberation of Kharkiv Oblast
  • October-December 2022 – attacks on the power system, adaptation of businesses to power outages

The nationwide factors influencing the activities of shopping malls and retail were:

  • Population migration to the western regions of Ukraine
  • Migration of retailers to the western regions of Ukraine
  • Population migration abroad (about 5 million citizens of Ukraine are officially abroad due to the military threat)
  • Inflation 26.6%, the commercial exchange rate of the dollar increased by 36% (from 28.85 to 39.2 UAH per dollar), the euro - by 28% (from 32.2 to 41.3 UAH per euro)

Considering the situation the consumer sentiment index of Ukrainians is surprising: if in January 2022 it was 62.3%, then in January 2023 it was 83.8%. In January of last year there was a lot of talk about the war and a lot of unknowns, so the citizens of Ukraine were worried about what would happen next. After the liberation of Kyiv Oblast and the beginning of the stabilization of the front consumer sentiment has improved and now the situation looks like the population of Ukraine is quite optimistic. 

Economic expectations are very high, although the economic situation itself is not attractive. So, going forward, if the Current Situation Index (CPI) does not start to rise this year, public disillusionment will be high and accordingly the Consumer Sentiment Index (CPI) and the Economic Expectations Index (EII) will go down. If now retail and commercial real estate is saved by the optimism of the population then consumer sentiment can have a very negative impact on the market.
If now retail and commercial real estate is saved by the optimism of the population, then consumer sentiment can have a very negative impact on the market. 


Traffic trends of shopping malls in different regions

In Kyiv shopping malls traffic began to grow from July-August 2022. 2.5 million people returned from abroad, return migration from the western regions to Kyiv region began and accordingly children went to school in September. No one canceled this season

In Kharkiv, the situation was much more complicated and remains so even now. Despite this after September-October 2022 we see a very rapid increase in traffic to shopping centers.  


In the west, the situation is much better. Many retailers relocated their stores, including opening new stores in both shopping centers and street retail. In July, there was a drop due to the return migration of the population from the western regions. But then the traffic of shopping malls/malls level off and already in December-January 2023 they actually return to last year's trend, therefore the western region and in particular Lviv remain the most attractive for retail in general.


Dynamics of changes in rental payments by region

The cost of rent in shopping centers also changed over time. For comparison we took two periods - from the 4th to the 8th month of 2022 and from the 8th to the 12th. The regional factor had the greatest influence on rental payments: a significant decrease in rental rates was in the cities closest to the front line, the least - in the western regions.

In Lviv a greater decrease in rental payments was observed than in other western regions. Here the factor of competition played a role, both among system large shopping centers/malls and small ones. But in other regional centers of western Ukraine - Ternopil, Ivano-Frankivsk, Rivne - there is no such competition. So the demand, which was during the migration of businesses to the west of the country allowed shopping malls/malls to keep rental payments at a fairly high level compared to other regions.

In the fourth quarter discounts on rental payments decreased and in the last months of the year, rent in the western regions returned to the pre-war period. In January-February 2023 it was even indexed and is now higher than in 2021-early 2022. Again the main factor is the current demand in western Ukraine.  


Thus, the main factors influencing the lease conditions were:

  • Geographical factor
  • Population migration
  • Relocation of retailer stores
  • The work of anchor international fashion operators has been suspended
  • Competitiveness of shopping malls in the region
  • Readiness of retailers for development

Financial indicators of the companies

We conducted a comparative section of turnover dynamics for companies that are developing despite the wartime. In the third to fifth months of 2022, of course retailers did not grow or work, but further we see a dynamic growth of their turnover. Individual companies that have high ambitions and tend to take risks use the crisis period in order to increase their market share. Compared to the year before last in 2022 such companies even showed an increase in turnover mainly due to new locations.

Companies that were more focused on the market of eastern Ukraine were not able to compensate with their openings and relocation the sales they had before the full-scale invasion. But companies that were proportionally distributed across the country or more concentrated in the western regions have a good increase in turnover in hryvnias. 


To open new or relocated stores retailers increasingly choose quick solutions: short annual agreements to reduce risks and pop-up formats that do not require large investments to open outlets. Shopping centers are ready to make such compromises in order to fill vacant spaces.
But the risks are still very high for everyone. The economy is supported by financial assistance from foreign partners and if it stops, it will be difficult for everyone. Due to the lack of confidence in the long-term and sufficiency of external support for the Ukrainian economy most new mall projects are suspended and business planning horizons remain short.

Source: https://rau.ua/novyni