WHAT’S NEW IN RETAIL MARKET?
The improving economic situation, wage growth and declining unemployment rates created favorable conditions for the development of the retail space market. Investments are directed both towards the improvement of existing shopping centers, updates of the outdated projects and expansion or construction of new area and new shopping centers. Significant amounts of investments in the renewal/expansion the leading shopping centers strengthens their position in the market and creates more favorable conditions, attracting new brands to the market. The growing amount of new projects is also seen in the grocery retail segment, which is likely to be related to the preparation process for Lidl market entrance. In 2015 retail will continue to grow, as current development is mostly driven by the needs of market players, who are leading the industry.
In 2014, the retail turnover increased by 5.6% compared to the same period in 2013. The biggest growth was recorded for sale of audio, video and hardware equipment, also for furniture and lighting in specialized stores; for communication equipment, watches, jewelry (12.6%) and for sale of textiles, clothing and footwear (10.5%). In 2014, the largest increase was observed in retail sale via mail order or via the Internet – by 27.6%. The significant retail growth is affected by weakening consumers’ expectations and a decline in the number of inhabitants outside the capital.
Improving consumption indicators and an increase in wages led to growth in the shopping center turnover, while maintaining the number of visitors at the similar levels. For now, the main goal of shopping center managers is to increase “dwell time” in the shopping malls and improve customer expenditure even further.
The total leasable shopping center area in Lithuania amounts to 820,000 sq. m or 0.28 sq. m per capita. Most of which or about 40% of the total supply is concentrated in the most developed city, the capital of the country, Vilnius, with 16 modern shopping centers and a total leasable area of 330,000 sq. m or 0.6 sq. m per capita.
The latest developed retail project in Vilnius was the 1st phase of DomusPro which opened in 2014. Developer TK Development has sold DomusPro to the investment fund Baltic Opportunity in 2013 and started its construction works accordingly. The 2nd phase of ~3,600 sq. m is being developed in 2015-2016.
Among largest refurbishments in Lithuanian retail market were re-openings of formerly named Gedimino9 (Vilnius) center under new name GO9 in March 2014, and renewal of Babilonas (Panevezys) shopping center in January 2015, that re-opened as RYO shopping center.
After more than a year of successful operation in Vilnius, IKEA will welcome a new neighbor Nordika Shopping Valley with total area of 40,000 sq. m. Approx. 45 million EUR will be invested in the project and house a large Senukai DIY store along with grocery retailer Rimi Hypermarket, electronics store Elektromarkt and a number of other additional retailers. The project will be developed in two phases and will form a favorable shopping destination in the southern part of Vilnius city.
Shopping centers developer Baltic Shopping Centers plans to expand shopping center Mega (72,000 sq. m) up to 102,000 sq. m and increasing number of tenants up to 190. Expansion project is planned to be finished in 2016, after approx. investments of 45 million EUR.
NEW BLOOD IN THE MARKET
International brands such as H&M, Subway entered and expanded the market. However, major part of the demand was generated from the local retailers seeking to secure the best locations in leading shopping centers and maintain their market positions. In the grocery retailers segment, all major retailers have renewed a lot of their stores along with opening new ones. Grocery retailer’s plans for 2015 are set as ambitious as in 2014. New entrant Lidl mainly caused such flurry in the market, being the first “unknown” brand in the market. It is expected that Lidl will open 25-30 stores in Lithuania and will start its operation after logistics center will be completed in Kaunas. The other “unknown” brand in the market is Fresh Market, as after rapid expansion of stores (26 stores in 11 cities) it throws all the forces to e-commerce development in Vilnius. The main outcome of such intense expansion of stores will be a shift in the market share and decrease of turnover per square meter.
H&M stores became a very important competitor to companies currently holding the largest share of apparel stores in Lithuanian shopping centers. Operating retailers are improving their concepts, modernizing stores and focusing on business class segment. During 2014, the total area of ~10,700 sq. m H&M stores was opened in Panorama, Go9, Ozas, Akropolis Siauliai and RYO. H&M has already signed eight lease agreements across the country and will continue opening new stores in 2016 (expansion in Mega, Kaunas).
IMPULS the largest private network of sports and leisure parks is significantly expanding across Lithuania too. During 2014-2015 more than 10,000 sq. m sports centers were opened.
During 2014-2015 we see a great restaurant market. Individual restaurants develop into restaurant networks (Soul&Pepper, Drama Burger, Jurgis ir Drakonas, Republic, London Grill and etc.).
LOW VACANCY AND INCREASED RENTS
Vacancy in prime shopping centers remained at the minimum levels as the new apparel retailer occupied large areas and intensified competition. Newcomers and successfully operating local brands took place in the weak market players share. Continuously improved turnover/rent ratios in successfully operating shopping centers in all major cities have caused significant rent increases. The tendency is likely to continue in 2015, for both the shopping centers and retail streets.
The year 2015 will be challenging and stressful for retail market players in order to maintain the position in the market. However, growing demand and potential entrance of the new brands to the market stimulate local developers to expand existing locations and start new developments, Favorable market situation will strengthen the position of landlords and will put some pressure for prices to rise.