After the restrictions related to the COVID-19 pandemic were removed across CEE in 2022, occupier demand and rental rates continued recovering. Despite all the challenges of the past year, the performance of retail schemes across different formats was solid, while retail sales reached or exceeded pre-pandemic figures.

However, the double-digit inflation and energy crisis resulted in retailers’ increased costs, lower margins, and the erosion of the population’s purchasing power. As a result, retailers and developers in the sector started adjusting their strategies for the near future.

Stock and Pipeline

Development activity in the retail markets in the CEE region primarily focuses on refurbishments and extensions of existing shopping centres, as well as the construction of smaller retail parks and convenience schemes. Several shopping centres are in the pipeline, too.

CEE is attracting new brands with over 80 new market entries registered in 2022 and more companies committed to opening their stores in 2023. In addition to international retailers, CEE also witnessed the demand of Ukrainian firms to expand to compensate for the losses caused by ongoing Russia’s invasion of their home country.

Market rents

Prime retail rents in the segment of shopping malls were subject to some upward correction in Q1–Q3 2022 across CEE, mainly due to increasing energy prices, but remained stable in Q4. Positive prime rent dynamics also continued in relation to retail parks, particularly in Poland (+22% y/y in Q4 2022), driven by relatively robust occupier demand. In 2022, prime high street rents softened in Warsaw and Budapest but increased in Prague, Bucharest, and Sofia, remaining unchanged in Bratislava since Q1 2020.

Investment volume

Retail retained its liquidity across CEE, as investment volumes in the sector almost doubled in 2022 compared to the previous year. The key investment deal closings in the retail property sector include the sales of 50% of the M1 portfolio, 49% of EPP shares and Forum Gdansk in Poland, and the portfolio of Tesco shopping centres in Hungary and Czechia.

In Q4 2022, prime yields have softened for some categories of retail space in CEE and may continue to do so in 2023.

The surging inflation was the main challenge for the retail market across CEE during 2022. Among other things, it led to the erosion of purchasing power of the population and increased service charges for the properties.