Shopping mall developers turn their attention outside Bucharest

The stock of retail space outside Bucharest to be completed by the end of this year is forecasted to almost triple when compared to 2014. As retailers are pushing the pedal on expansion, developers are ready to cater to their growing demand, say real estate consultants. Beyond 2015, Timisoara is shaping up as the newest hotspot on the developers’ radar.

Simona Bazavan

More than 150,000 sqm of new retail space is forecasted to be delivered by the end of this year in Romania, in comparison to rather tepid growth in 2014, when only 75,000 sqm were completed, according Colliers International data. Out of this, 70,000 sqm will be outside the capital, a considerable increase compared to the 27,000 sqm delivered in 2014.

The delivery of the 45,000 sqm Coresi Shopping Resort shopping mall in Brasov, developed by Immochan and New Europe Property Investments (NEPI), and the expansion of three of its regional shopping malls – City Park Constanta, Deva Shopping City and Severin Shopping Center by more than 20,000 sqm – were the main highlights of 2015. Additionally, the completion of the first development phase of NEPI’s Timisoara Shopping City in western Romania, will be added.

All of the new projects, as well as the announced extensions, are driven by a growing demand coming from retailers, says Adelina Oprita, retail consultant with JLL Romania. “Positive economic perspectives, the comeback of consumer confidence and the subsequent consumption growth have been encouraging both developers to resume investment plans and retailers to shift their focus on expansion,” she explained.

Bucharest remains the main retail market in the country, the city hosting over one million square meters of modern retail space of the approximately 2.5 – 3 million sqm developed country-wide. Purchasing power is highest in the capital, where the best-performing shopping malls can report turnovers that are double those registered on regional markets, according to Oprita. However, this gap shows signs of narrowing. “The ratio between sales in the large cities in the country and Bucharest has decreased considerably over the past years to the point where, for most retailers, the difference does not surpass 20 – 30 percent of the sales they register in Bucharest stores. There are even situations when certain shopping malls outside Bucharest can equal capital sales,” Liana Dumitru, associate director retail agency with Colliers International told BR.

In line with sales levels, rents are also lower in regional shopping malls in comparison to Bucharest locations by 40 to 50 percent, according to consultants. If in Bucharest the average rent for prime properties stands presently at about EUR 60 – EUR 70/sqm/month, outside the capital this drops to EUR 25 – EUR 35/sqm/month, according to JLL data.

All this is reason enough for retailers to look increasingly more at regional cities in order to expand their local footprint. “Indeed, with the new projects announced in Bucharest for the 2016-2017 period, we see a certain degree of saturation shaping up. And developers’ attention is shifting towards cities in the country where the retailers’ performance is high and the shopping mall offer is limited,” explained Dumitru. This includes cities like Timisoara, Brasov, Constanta, Satu-Mare, Deva, Drobeta Turnu Severin or Piatra Neamt, which will see both new openings and expansion of some of the existing projects, say consultants. “We also expect investments in upgrading first and second generation malls in order to make room for new coming retailers and to better cope with increasing competition,” added Oprita.

A new development this year is that major cities, like Timisoara or Brasov, have become again places of interest, after several years of stagnation, Mihaela Galatanu, the head of research at DTZ Echinox told BR. “While in Brasov the first modern shopping center has been completed, in Timisoara the first one will be delivered after ten years of inactivity. In both markets, developers have already announced plans to deliver new projects going forward,” she explained.

Overall, more than 100,000 sqm of new retail space is scheduled for delivery outside Bucharest next year – be it as new projects or expansions – in addition to the 100,000 sqm which will be completed in the capital, according to Colliers International data.

As for the retailers fueling this demand, consultants say fashion players such as H&M or Inditex lead the way, with most international chains being present both in Bucharest and elsewhere. “Most of them are already present in big cities with at least one location, but they have plans to expand by opening new stores in new retail projects being announced. We also see new brands that are now entering the market and, in addition to opening their first stores in Bucharest, they are also analyzing the possibility of expanding to big regional cities over the next two years,” said Dumitru.

Timisoara leads the way

Be it retail, office or industrial, of all the regional cities in the country, Timisoara boasts the most significant number of new real estate investments announced in 2015. The western Romanian city has the highest per capita income outside the capital but also the lowest modern retail stock per capita in the country, according to real estate consultants. Add the fact that the city has had, and continues to have, a dynamic economic development, spurred by the large number of investors attracted locally, and an unemployment rate that is close to zero, and one can understand why it has caught the eye of real estate developers.

On the retail segment, four projects are under development, or have been announced, which could almost triple the existing stock of 90,000 sqm, should all projects be completed. NEPI is working on delivering a 70,000 sqm shopping center in the city and Iulian Dascalu announced this September that he will invest EUR 220 million in transforming the only existing mall in the city, Iulius Mall Timisoara, into a multifunctional complex that will also feature office space and a hotel. Additionally, Alpha Group Investments and TBE Business Solution, controlled by Ali Ergun Ergen, have announced a EUR 90 million retail and office project. Prior to that, Plaza Centers said it had secured the necessary financing for the construction of a 40,000 sqm shopping center in the city.

Part of the EUR 220 million that will be invested by Dascalu in the future OpenVille complex, will go into almost doubling the surface of the existing shopping mall, which was opened in 2005 and now features a gross leasable area (GLA) of some 66,000 sqm, said the businessman. The retail component is scheduled for completion in 2017. This is the second complex of this kind that the Romanian businessman will invest in, after Palas Iasi, in eastern Romania. Why Timisoara and not one of the other cities where the developer has similar properties? The city’s and the region’s economic development were the main reason behind this, said Dascalu.

Confident in the city’s potential to absorb new retail space, other developers are upgrading already announced projects. Alpha Group Investments, a division of the Alpha Bank group, and TBE Business Solution controlled by Ali Ergun Ergen, announced this September that they will invest EUR 80 million in a retail and office scheme in the city. Timisoara Centrum was initially supposed to have a GLA of 70,000 sqm, out of which 10,000 sqm office space, but at the end of September the developers announced that they will invest an additional EUR 10 million and increase the project’s surface by 40 percent.

The upgrade was the result of growing demand from the market, said developers. “Two months ago when we first announced the shopping mall, it had a 50,000 sqm GLA. Now we are talking about 70,000 sqm. The reason for this is that Timisoara is the most dynamic city in the country right now and there is a huge demand for retail space,” said Ergen, adding that he expects the shopping mall to cash in EUR 15 million as revenue annually. Work on the site has already started this autumn and the project is scheduled for completion in 2017.

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