The retail segment was arguably one of the worst hit among real estate markets, considering the lockdown during the emergency state, but now consumption is already above pre-crisis highs, though in a different structure. All retail players that have online sales expect that this channel will generate a higher percentage of turnover in 2020 compared to 2019, a quarter of respondents estimating increases of even over 50%, according to a survey conducted by Colliers International’s Retail Division among more than 40 tenants and landlords from the retail sector in Romania.
For the vast majority of respondents (85%), footfall in stores has been lower in the third quarter than compared to the same period of 2019, with quite a lot reporting even more than 40% lower clients entering shops in recent months. This looks to be more or less in line with other metrics, like Google’s Community Mobility Indicators, which showed traffic in retail and recreation areas to be, on average, at least 20% below the trend in September. Nevertheless, 15% of respondents, mainly coming from food, discount or home decoration segments saw footfall increasing a bit or remaining constant year-on-year.
In terms of sales figures, 27% of respondents reported sales increasing or remaining fairly in line with 2019 in the July-September period, which means that while fewer people are entering shopping areas, they are spending more per shopping session than in the past. Also, retailers with more retail park type locations in their portfolio were less affected, managing to keep traffic in their shops and the level of sales higher.
Due to the lockdown period when stores were closed, 42% of retailers expect the turnover in 2020 to be lower than in 2019 by 30-50%. However, there are also categories that were less affected and which expect total volume of sales to increase in 2020, such as food (supermarket/hypermarket), DIY, home decorations or sports. Furthermore, companies are looking for alternative channels to compensate results, thus Colliers survey shows that 1 in 2 want to increase their online presence, only 10% of respondents want to downsize their brick-and-mortar presence while most are focused on omnichannel sales and a mix between in-store and online services. Also, most retailers with expansion plans intend to expand their presence in retail parks and dominant shopping centers.
”The dynamic of online sales is quite impressive: at least one in four companies with online presence expect an increase of at least 50% of the sales through this channel. In general, fashion retailers are among those most likely to expect sharp increases in online sales, but this is not to say that other sectors are lagging. Further, diversity will likely be the new game in town, as retailers/landlords may spread their interest towards proximity-based schemes or retail parks and, to some extent, high street destinations. Overall, the next few years will certainly look interesting and most probably we will see new shop concepts and/or new way of operating after adapting to the new reality”, says Simina Niculiță, Partner & Head of Retail Agency at Colliers International.
In another question, the share of retailers reporting less than 5% total turnover from e-commerce is set to almost halve, based on the companies estimates, with just 36% of respondents expecting a somewhat limited impact on their overall revenues in 2020 from online sales. On the other end of the spectrum, the number of companies looking to report at least 20% of their revenues from e-commerce has increased to 30% of respondents from 21% as per the similar survey conducted by Colliers at the beginning of this year.
In terms of rents, a clear majority of retail tenants expect rents to decrease next year, which could suggest that tenants are expecting some way to share the difficult year that was 2020 with the landlords and get support for the period until sales and traffic will recover. On the landlords’ side, almost 90% actually expect income to remain constant or even to increase, according to Colliers’ survey about net operating income estimates in 2021, which should result from a full operational year and much lower number of retailers that need short term rent discounts.
Overall, retail market participants seem to be a bit more pessimistic than those in other segments of the real estate market (like offices or industrial), but that can be explained by the impact that the pandemic has had on this sector. That said, 2 in 3 respondents expect to recover a decent business level for their own company by end-2021.