The pandemic has slowed down developers' plans in the retail segment, but it hasn't stopped them altogether. One of the reasons is the arrival of new brands on the domestic market. In the last year, where retail was significantly affected by Covid-19 related restrictions, 25 brands were added, mainly in the field of fashion and fashion accessories. In contrast, 14 retailers have left the local market, and several other major tenants reported a reduction in some areas or even bankruptcy. "Due to the conditions of state support and the associated tactics and strategies, the real condition of many retail players, including gastronomy, will probably manifest itself during the first half of the year," says Markéta Křížová, Associate Director in Capital Markets at BNP Paribas Real Estate, which published the current analysis focused on retail properties in the Czech Republic.
Despite caution, expected future consumer demand, along with confidence in the stability of the retail market, has prompted several developers to pursue ambitious plans for larger retail projects. The construction boom is visible mainly with retail parks in the vicinity of smaller, regional cities. Even the boom in e-commerce hasn't changed anything in this direction, with last year’s sales of 196 billion CZK showing a 26% year on year increase.
Traditionally, almost half of development projects are concentrated in the capital and its surrounding area. In the spring of 2021, two important projects are expected to be completed: the Bořislavka Centrum office and shopping centre in Prague 6 (10,100 sq m) and the Spektrum Čestlice retail project (6,600 sq m). Moving according to plan is the complete reconstruction and expansion of OC Řepy in Prague 6 (14,500 sq m), with completion planned for the end of May or the beginning of June 2021.
The expansion of the Zličín Metropole has been postponed. The pandemic also postponed the opening of the long awaited Primark concept in the completed Flow Building on Wenceslas Square, with the exact opening date yet to be determined.
One of the most anticipated projects this year is the start of construction of the multifunctional Savarin project in the centre of Prague, with 35,000 sq m of leasable space. In the first phase, the historic palace in Na Příkopě Street will be reconstructed. "This is an extensive plan, but Prague has still not reached such a saturation in retail as in Hradec Králové or Olomouc. However, it is certain that Savarin will have to respond to the change in customer behaviour and footfall at the centre," says Kamila Breen, Head of Research & Consultancy at BNP Paribas Real Estate, with reference to the closure of some units on Prague's main shopping streets.
In Prague, there are currently about 850 sq m of retail space per 1000 inhabitants, in Olomouc it is over 1500 sq m. In Hradec Králové, where the OC Atrium and the neighbouring Tesco building were connected, among other things, the saturation is even higher. According to consultants from BNP Paribas Real Estate, due to the saturation of the shopping centre market and the impact of the pandemic, we will observe a decrease in the performance of some centres and an increase in vacant units.
The retail market in Brno is undergoing dynamic development. The modernisation of the Avion shopping park was suspended, and the expansion of the Královo Pole Shopping Centre was postponed. On the other hand, the reconstruction of OC Futurum, which has expanded its area by 3,000 m2, will very soon be completed.
Two significant projects have been announced in regional cities. In the former Baťa complex in Zlín, the Fabrika Zlín complex will be built with 27,400 sq m of shopping area. In the second half of this year, in parallel with the retail part, the construction of sports grounds and other leisure activities is to begin. In Pardubice, on the premises of the former distillery, the developer Redstone plans to start construction of the Galerie Pardubice shopping centre very soon. In addition to shops and services, the complex will also have a hotel and restaurant. The centre will offer 50,000 sq m of leasable area.
Development in the sub-segment of retail parks is also active. Last year, the Choceň Retail Park (5,010 sq m) was completed, as was the first phase of the Ovčáry Retail Park (6,800 sq m). The biggest projects include Aventin Jihlava, with Lidl being the key tenant. The developer also announced completely new chains entering the Czech market. It will offer a total of 38,000 sq m, and the first stage will open this spring.
Rents fell in Prague, in some cases in double digits, and not only in shopping centres, but also on the high street. In addition to delays, the impacts of Covid-19 could be reflected in the utilisation of centres, where the vacancy rate may increase. Owners and developers are trying to prevent this with lower rents and more flexible conditions - for example, contracts for shorter terms or putting greater emphasis on the so-called turnover rent.
"Uncertainty associated with the further development of retail is reflected in revenue growth. Investor interest is declining with risk, although the decline in prices has not yet been reflected in the market due to a lack of transactions. The assumption for this year does not yet indicate that this trend will change significantly," concludes Markéta Křížová, according to whom the yield at shopping centres will undergo a significant change in the coming years.
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