Sales may be growing but retail space is not, and nothing new is due before 2017.
With no major new development ongoing in the Budapest retail market, there was a limited Hungarian presence at the recent MAPIC, the international retail property trade show at the Palais des Festivals in Cannes last week. As is the pattern with its wider property sector counterpart MIPIM, which is held in March, Poland, Czech Republic and Slovakia all – in contrast to Hungary – had a strong presence. The Eurovea retail, residential and leisure center on the Danube in Bratislava, for example, was showcased. “The extension of the center is driven by demand from retailers from Slovakia and overseas. We have had very good feedback from talking to retailers at MAPIC,” said Balázs Magyar, Director of Eurovea.
Despite a rise in retail spending, there have been no new major shopping center deliveries in recent years and, with no projects currently under construction, the next completions will not be until 2017 at the earliest. With economic concerns causing uncertainty among developers, pipeline projects have not gone ahead, even though these are by established European developers who have delivered projects elsewhere in CEE. The supply side of the Budapest retail market could be regarded as challenging, as leading retailers entering the market require large units in the best shopping centers where there is often a waiting list of tenants. In response to pent up demand, owners have been undertaking asset management of their centers with refurbishments. Developers, in partnership with local authorities, have also been developing the infrastructure of the major high streets in the center of Budapest.
New retail supply has reached historic lows in recent years, according to CBRE. Since 2012, less than 50,000 sqm of new retail space has been delivered in Hungary. JLL says total shopping center stock in Budapest is at around 770,000 sqm in 25 assets. By way of comparison, current stock in Czech Republic stood at 2.65 million sqm at the end of the first half-year, according to JLL, while around 80,000 sqm is under construction. In neighboring Slovakia, developers are delivering projects in regional cities. The €50 million Forum Poprad by the prolific CEE retail developer Multi Development has delivered 22,000 sqm of retail and leisure space in the center of Poprad in the Tatra mountain region.
Retail sales in Hungary grew by 6.1% year-on-year for the first half of 2015 – a clear acceleration compared to previous years, according to CBRE; similarly high levels were last seen in 2006. Although growth in the economy and retail sales is expected to slow, retail sales figures are forecast to remain fairly robust, according to Cushman & Wakefield. With regard to demand, CBRE has registered a growing number of new retailers on the Hungarian market. Thirteen brands have already entered or are scheduled to enter the market this year as they target prime high street locations and prime shopping centers in Budapest.
Analysts consider the best performing Budapest shopping centers to be the 47,000 sqm Allee, the 44,000 sqm Mammutt, and the 31,500 sqm MOM center in Buda. In Pest, the dominant centers are the 66,000 sqm Arena Plaza, the 45,000 sqm WestEnd City Center and the 68,000 sqm Árkád shopping center. All have waiting lists for tenants and therefore are able to command the highest rents. There is a widening gap between the primary and secondary markets.
Malls are going to have to evolve to meet changing times and needs, experts say. “Shopping centers will be forced to change their image. In the coming years, we can expect mainly qualitative changes in the comfort of shopping,” said Dominika Jedrak, director of research and consultancy at Colliers International Poland in a presentation on Central European retail at MAPIC “Slowly, these changes are already becoming visible; this applies to both new projects and modernizations undertaken by the owners of older buildings. Innovations can also be seen in the rapid development of e-commerce and the growing number of retail chains opening new sales channels. Shopping centers will have to adapt to the changing strategies of retail chains and take up the related technological, organizational and financial challenges,” he added.
There are three major pipeline projects in Budapest awaiting the green light for building to start. “The market has not justified the development of new shopping centers and needs a continued rise in demand for construction to commence,” commented Viktória Szabó, head of retail at Cushman & Wakefield. “However, we are now moving in the right direction for new development in the next two to three years. The pipeline projects are in good locations and the question is whether the developers can source the required number of anchor tenants. These need to be the right tenants, who are not located in competing centers.”
The planned 44,000 sqm Etele City Center by Futureal is located next to the Budapest One business park, adjacent to the terminus of the recently completed Metro 4 line on the western edge of Budapest. The project is intended to become a business and leisure hub that will include retail and service elements adjacent to office centers. Germany’s ECE has agreed to project manage the development. Another pipeline project is the 37,000 sqm Mundo shopping center in Zugló by the Polish developer Echo Investment. ECE, meanwhile, is planning the 50,000 sqm Árkád Acqincum; when one of these three pipeline projects might actually go ahead remains to be seen. The last Budapest delivery was the 20,000 sqm expansion and refurbishment by ECE of the existing Árkád Budapest at Örs vezér tér in District X, bringing the size of the development to 68,000 sqm and making it the largest retail center in Hungary.