The CBRE Shopping Centre Index reveals the condition of domestic shopping centres, which has been improving since the pandemic

• Footfall at regional OCs increased by 4% year-on-year
• Turnover recorded year-on-year growth of 5%
• Vacancy rate fell slightly from 4.0 to 3.9%
• Average rent increased by 7.9% year-on-year

While brick-and-mortar stores were still dealing with the negative effects of the coronavirus pandemic and the unfavourable economic situation last year, the first quarter of this year already suggests that the domestic retail industry has had a difficult period behind it. It is gratifying that the beginning of 2024 has brought cautious optimism to retail not only in the Czech Republic, but also in Europe. In its Shopping Centre Index analysis, CBRE, a leader in the management and leasing of retail space, looks back at the performance of regional shopping centres over the past year, adding commentary on the current market situation. There are also the results of a current survey focused on the expectations and strategies of retailers.

"Inflation played a significant role in the development of the retail market last year. It achieved record values for the second year in a row, and despite the gradual decrease, it rose to 10.7%. As a result, real wages fell, which in turn affected consumer sentiment. They started saving on goods of a superfluous nature. This effect, together with inflation, was very visible in the development of retail sales. While nominal sales maintained positive growth, real sales fell. Overall, according to the CZSO, real sales were in decline for 19 consecutive months, until December 2023. At the same time, a similar situation also prevailed, with exceptions, in the rest of Europe," commented Klára Bejblová, CBRE's expert on market research and consultancy in the retail field for the Czech Republic and the European region.

Compared to the pre-pandemic year 2019, the development of the mall's footfall dynamics showed slight progress, although it still did not reach its value. In a year-on-year comparison, this was an improvement of 4%, which corresponds to the pan-European average. "Customer behaviour has not changed significantly from the point of view of the frequency of visits. Czechs most often go to a shopping centre to buy food, even several times a week. Another reason is to visit a fast food outlet, restaurant or cafe in a food court or buy clothes, shoes and accessories," explained Aleš Nečas, Head of the Retail Leasing Department at CBRE.

Shopping centre performance grew by almost 5%

Compared to 2019, shopping centre turnover improved by up to 16%, though the main part of this was (similarly to elsewhere in Europe) the aforementioned inflation. "Absolutely exceptional performances were achieved by the services sector, which managed to improve by 21% and compared to 2019 by an incredible 68%. Travel agencies, nail studios and barbershops played a key role in this. The growth of the gastronomy sector also continued the following year. Turnovers in it were confirmed by 12% and, when compared with 2019, by up to 28%. Customers were mainly interested in refreshing drinks, Asian cuisine and also international fast-food chains. The third most successful sector was specialised retail, where sales increased by 8% and 28% respectively compared to 2019. Drugstores, opticians and pharmacies were the driving forces," said Klára Bejblová.

On the contrary, three out of nine sectors recorded a year-on-year decrease in turnover. For fashion (total -3%), the subcategory with men's fashion did well, but women's fashion, on the other hand, has been struggling for a long time and after another year-on-year decrease (-4%) lagged behind 2019 by 25%. Sellers of sports goods, sports fashion in particular, as well as household equipment and furniture, were also affected.

The vacancy rate fell slightly to 3.9% last year

Vacancies in regional shopping centres have still not returned to 2019 levels, though this is still a very healthy value that offers customers a wide range of stores and services while maintaining strong competition among tenants. As in the rest of Europe, regional centres with a high proportion of leisure activities achieve the highest vacancy rates (around 5.2%).

In terms of the distribution of individual sectors in shopping malls, there have been no significant changes over the past five years. Fashion continues to dominate the overall area with 36%, followed by specialty retail at 14% and sporting goods at 12%. In terms of development, the largest year-on-year increase in rental space occurred in the gastronomy sector (+6%), mainly thanks to the expansion of fast-food chains. The second highest growth (+3%) was recorded in the services category, where both barbershops and travel agencies expanded, as well as home equipment and furniture sellers. However, while services grew in both the area and the number of rented units, the second category simultaneously saw higher branch closings and new openings on larger areas, leading to a 5% increase in the total number of units and a reduction in the average sector size. The opposite was the case with the electronics sector, where, although there was a total decrease in store areas by 2%, the number of units increased by 7% due to the expansion of specialised stores.

Year-on-year growth in average rent reached 7.9%

Even so, the significant increase is still "under-inflationary" and CBRE continues to perceive rent pressure from selected tenants or sectors, similar to elsewhere in Europe. The electronics sector (+17%) and services (+10%) recorded the strongest year-on-year growth in average rent. On the contrary, the categories of specialised food, household equipment and furniture, as well as fashion, achieved a below-average increase.

The first quarter of this year arouses positive expectations regarding further developments

The start of the new year has brought some optimism to the retail market. Closed data for the first three months indicate an upward trend for almost all monitored indicators. Footfall increased by 4% year-on-year, average rents grew by 3% and turnover rose by 6%. "If we look at sales adjusted for inflation, for the first time after nineteen months they reached positive values of around 1 to 2%," stated Klára Bejblová.

The only indicator showing a deterioration so far was the vacancy rate, which rose slightly to 4.4%. "However, such a phenomenon is quite common at the beginning of the year. Some brands are ending their leases, while others are just signing new contracts. In any case, a certain proportion of vacancy is necessary if you want to implement any structural change in a centre. Therefore, I expect that the situation will stabilise by the end of the year," explained Klára Bejblová.

The current market situation is also reflected in the strategies and plans of retailers

The positive mood is evident even among the retailers themselves. “The results of CBRE's May survey show that 57% of respondents plan to expand their retail network in terms of the number of stores; on the contrary, 30% of them intend to reduce the average size of units. Segments that have achieved very good year-on-year sales, whether they are operators from the gastronomy sector or health and beauty, are logically going to increase their portfolio. However, even 56% of the surveyed brands from the fashion sector, which fell year-on-year last year, are not reluctant to expand," commented Jan Janáček, Head of the Retail Sector and Retail Leasing Department at CBRE.

In terms of preferred locations for expansion, regional business centres with a larger catchment area are clearly still popular. The popularity of retail parks is also growing in the long term, even among retailers who have not sought this type of real estate in the past. "We have recently noticed a big shift in the popularity of transport hubs such as railway stations, airports or gas stations, where only 5% of the surveyed brands are currently located, but 14% of retailers plan to focus on them as part of their portfolio development," said Jan Janáček, adding that in terms of possible uncertainties, retailers are most concerned this year about labour shortages (claimed by 42% of the respondents), rapidly rising wages and rent costs, as well as the slow pace of sales recovery.

About the Shopping Centre Index

The CBRE Shopping Centre Index is the only market indicator that has continuously monitored the performance of regional shopping centres in the Czech Republic since 2013. It analyses a sample of 23 shopping centres in regions (excluding Prague) with a retail area exceeding 660,000 m², i.e. around 40% of the total volume of shopping centres in the regions. Approximately 70 to 85% of the area is made up of shopping malls, the rest is occupied by food chains, multiplexes and other leisure concepts such as children's corners, bowling alleys, casinos or car washes, which are located in up to a third of the centres. These segments (outside the shopping malls) are not part of the index, as they could cause a bias in the results.

More about the current survey

The survey of retailers' expectations and strategies took place from May 3 to 15, 2024, when the group of respondents consisted of 40 brands operating more than 3,725 stores across the Czech Republic in 6 main segments (clothing and footwear, health and beauty, gastronomy, services, food and sporting goods).

About CBRE Retail

CBRE is an expert in the management of retail space, and currently manages 23 shopping centres and retail parks across the Czech Republic. It provides extensive and comprehensive consultancy in the area of buying and selling retail assets, renting retail space, representing tenants when entering the Czech market or optimising the store network, as well as the management, marketing and concept design of shopping centres and retail parks. Last but not least, it is a leader in retail market research and customer behaviour.