2020 was one of the most challenging years for retail and retail real estate. The decrease in the attendance of shopping and entertainment centers and the drop in the purchasing power of Ukrainians resulted in a collapse of rental rates in the SECs from 5 to 30%.
However, in 2021, the situation improved somewhat: the cost of square meters in the first half of the year increased by an average of 5-10%. has examined rental prices in SECs in different cities of Ukraine.
Anchor brands are the success formula
The cost per square meter is impacted by the properties of the SEC itself—its location and flows of potential buyers. At the same time, the set of anchor operators remains a significant factor. These are a large supermarket, entertainment segment, catering establishments, and fashion stores.
When choosing a SEC, Ukrainians first of all pay attention to the availability of the shops of the well-known international department stores and mono-brand stores. At the same time, they have a part of anchor brands operating on a franchise basis and owned by Ukrainian companies, for example Tommy Hilfiger, Gant, Tom Tailor, Sandro, Maje, Hugo Boss, Levi's and others.
Kateryna Vesna, Head of Retail Agency and Consultancy in the field of retail real estate at the company Cushman & Wakefield in Ukraine, notes that Ukrainian chains dominate in the grocery store category in the SECs.
Silpo, Varus and others, but the famous French retailer Auchan, the German chain Spar, and the chain Novus with a share of foreign capital compete with them. Most of the anchor catering establishments are also of Ukrainian origin, with the exception of the catering area in the SEC Blockbuster Mall, where the organization of the STAR food market was handed over to the foreign operator management," Vesna explains.
As for the rental rates in the SECs, they significantly depend on the size of the rented area and the product group.
"High rental rates, $/m2/per month in Kyiv: SEC (sections of 100-200 m2)—60-70, on the main shopping streets—about 70. In particular, for fashion brands of the middle segment in Kyiv SECs, rates can start from 10$ per m2, and in addition, maintenance fees are about $10. In other million cities, the level of rental rates is slightly lower than in Kyiv. For example, in Odesa, the highest level is $50-60 per m2, and they start at $8 per m2. In small cities—regional centers, for example, in Ternopil, rental rates start from $7 per m2 and reach $20", Yuliia Kuznetsova, Head of Consulting Department at NAI Ukraine, points out.
According to OLX Real Estate, in the Q3 of 2021, the average rental price per 1 m2 in the SECs of Ukraine was estimated as follows:
Average rental price in the SECs of Ukraine
- Kyiv—14,750 UAH per m2;
- Dnipro—14, 025 UAH per m2;
- Kharkiv—14,500 UAH per m2;
- Kryvyi Rih—13,500;
What is the vacancy of the premises?
According to OLX Real Estate, the largest number of free properties is presented currently in Kyiv, Dnipro, Kharkiv, Odesa, and Lviv. At the same time, the level of vacancy in different cities is uneven. For instance, in shopping centers in Kyiv, it is about 10%—11%. In particular, this figure was impacted by the opening of such a large facility as the SEC Retroville mall in 2020, and the launch of the SEC Respublika Park November will also have its effect.
«By the end of 2023, 12 new shopping centers are to open in the capital that, when being launched, always cause a wide excitement around them, and, accordingly, incomes. If these plans are implemented, the area of free premises for rent will increase by an additional 800,000 m2. In general, in different cities of Ukraine it is expected that several new shopping and entertainment centers will be put into operation at once in 2022—a total of about 1.5 million m2.»
Chairperson of the Council on Foreign Investment and Economic Development of Ukraine
In turn, the average vacancy rate in Odesa is up to 5%. This is related to a rather limited supply: over the past 5 years, not a single professional SEC with an area of more than 30,000 m2 has been commissioned here. But in the next three years, it is planned to open 8 retail facilities in Odesa with a total area of about 220,000 m2, and that will significantly increase the average vacancy rate.
In small towns, where there is a shortage of modern and high-quality retail space, the gap in the level of vacancy between different malls is especially noticeable. For instance, there are shopping centers in Ternopil that today have a zero vacancy rate. At the same time, in less popular and visited malls, the vacancy rate reaches 8%.
How much may rental prices increase next year?
The quarantine years are marked by a decline in the attendance of shopping facilities along with an increase in the time spent in establishments and the average check: according to the NAI Ukraine poll, +15% in 2020 and +30% in 2021. This figure keeps the retail "afloat".
Now the most successful projects are large SECs "all in one place", where you can cover as many needs as possible, saving time and minimizing visits to places with a crowd.
«We do not expect a significant increase in rental rates next year, they will be increased by owners within the envisaged indexation level or the planned level of rent increases in accordance with the terms of the lease agreements. Usually this is 5—15%, and for malls/SECs that opened in 2021, indexation can reach 20%. It should be noted that in the case of a significant impact of measures related to preventing the spread of Covid-19, such as a lockdown or restriction of attendance for the unvaccinated population, there may be a decrease in the attendance of the SECs. And, as a result, a decrease in turnover in retail chains operating in the SECs. In this case, the practice of short-term agreements to reduce the fixed part of the rent for the period of such circumstances will most likely be applied.»
Head of Retail Agency and Consultancy in the field of retail real estate at the company Cushman & Wakefield in Ukraine
In particular, during the lockdowns there was the following system of agreements with lessors—SECs in Ukraine: compensation for utilities and maintenance payments with a complete absence of rent for the period the store was closed. And also with partial compensation in the case of using the store's premises during the lockdown as a warehouse/pick-up point, etc.
What trends will we see in the future?
The analysts expect the shoppertainment (entertainment and shopping) segment to increase by 50% in the SEC in the coming years. As well as an increase in the share of coworking spaces in retail facilities that will form their own community of a permanent pool of clients.
Yuliua Kuznetsova, Head of Consulting at NAI Ukraine, identified four key trends. First, there is a merger of offline and online retail within shopping centers. This refers to the development and improvement of online services for the product delivery, establishing pick-up points of the major online stores and marketplaces in the malls.
Second, further digitalization continues: targeting big data in relation to visitors and tenants as a basis for high-quality analytics and interactive shopping experience + digital events from the mall. The upcoming technological development will allow operators to aggregate huge amounts of data to study and detail the portrait of the consumer. And properly build the spatial organization inside the store, as Amazon and Springboard Research do this.
Thirdly, the SECs—as places of social attraction—are place making. Accordingly, it becomes necessary to search for architectural and technological solutions that make such a space as comfortable as possible for a long-term stay. Concepts that provide spaces for children and comfortable family leisure, spaces for work and business meetings.
And fourthly, this is the global trend of sustainable development, supported by domestic shopping centers. Support and promotion of local entrepreneurs, especially in the grocery retail and food beverage segment, improving environmental friendliness (reducing plastic consumption, separate waste collection, and using energy-saving technologies), and charitable initiatives.