CBRE, the world’s leader in the area of the property management and leasing of retail premises, is coming with the ninth issue of its exclusive Shopping Centre Index, which assesses the performance of regional shopping centres in the Czech Republic on the basis of five main indicators: footfall, turnover, average basket, rental levels and vacancy rates. Although, the vast majority of the retail market would like to forget 2020, an understanding of the true impacts of the Covid-19 pandemic becomes of key importance for the further revival of the market in the future. It is important to understand the changes in the behaviour of customers, tenants, and landlords in order to identify the opportunities the pandemic created. CBRE experts comment on the situation on the retail market in the context of an extensive analysis of the performance of 20 regional shopping centres, which represent a retail area reaching 575 000 sq m.
"Before the outbreak of the Covid-19 pandemic, the performance of shopping centres grew at an increasing rate six years in a row. Nevertheless, 2020 brought substantial anti-coronavirus measures, including three major restrictions on the operation of physical shops, food & beverage and services. Most physical shops were closed for a total of 105 days, while for food & beverage operators it was almost 130 days. Under normal circumstances, the locality, shopping centre size and mix of tenants influences the success of the shopping centre and its resilience to competition. Last year, the decisive role played the number of shops and services that could, in spite of the government restrictions, remain open. These tenants ultimately influenced the overall footfall of the centre and its economic results,"
Tomáš also added: "Whenever there was a lockdown, the consumption of the population moved to online channels. That was one of the reasons why, according to data from the Czech Statistical Office, retail improved by 0.4% overall year-on-year. The purchasing power remained strong, but the way how customers purchased the goods changed. According to the Heureka portal, online shopping increased by 26% year-on-year. The greatest interest was for the categories: Films, Books and games (+47%), Food & Beverage (+45%) and Sports (+43%).
The tenant mix had a significant influence on the performance of shopping centres during the pandemic
Shopping centres underwent several structural changes in recent years. While the area of hypermarkets and supermarkets decreased, the space for shopping galleries, food courts and leisure activities expanded. We expect this trend to continue, though there were no changes in the distribution of the space in the pandemic year of 2020. In a typical regional centre (outside of Prague), the greatest share in the shopping mall area is Fashion (37%), followed by Speciality retail with 15%. This category includes, for example, pharmacies, bookshops, perfumeries, opticians and toy stores. The third largest share on total mall area was Sports with 12%. Last year was the second in a row where the Electronics sector expanded, gradually growing by 4% to the current 7%. Household & Furniture, on the contrary, decreased by 7%, though it saw the greatest expansion in 2019. The size of an average retail unit last year did not change and remained stable at 220 sq m.
After six years of continuous growth, the average turnover of shopping centres dropped by 25.5% year-on-year
It is evident that the Covid-19 pandemic and the associated closing of the majority of shops and services caused appreciable losses to shopping centres. Since the pandemic situation hit all of Europe, a similar development in the volume of sales was also reported in other countries. The decrease in turnovers ranged from 10 to 40%, depending on the type of measures in the individual countries. “Locally, those regional shopping centres, where Fashion occupied only 20% of total mall area and the share of Household & Furniture, Services and Speciality Retail was more extensive, were affected the least by the pandemic. Such centres saw ‘only’ an 11% decrease in the turnover. On the contrary, experience shopping centres with Fashion dominating at almost 45% and where significant part of the space is dedicated to leisure, were hit the most. The drop in their sales, reached up to 28%,” commented Tomáš Míček.
If we look at the individual segments, Food & Beverage got the worst of it over the past year. The most dynamic sector of the last three years, which saw double-digit growth in the past, dropped by 36% year-on-year in shopping centres. It was followed, of course, but the categories of Fashion and Accessories, with a 30% decrease. Seasonality played a large role here, similar to the area of the sale of sporting goods. That is because the retail operators did not have enough spare financial funds for the purchase of new collections due to the stock of unsold collections.
“The services that reported a solid dynamic in previous years dropped by almost 28%, year-on-year. The main reason was a dramatic decrease in the turnovers of travel agencies, which fell by 68%. Nevertheless, this segment wasn’t even supported too much by shops that were open without restrictions. The turnover of shops with Pet Food and supplies dropped by 10% and the sub-segment of Other Services, which include flower shops and tobacconists, by 6%. Speciality Retail, which was partially open last year, performed better. Even so, its average turnover decreased by 15% year-on-year. Opticians and Pharmacies operated without restrictions were the only ones to report growth in the amount of 1.8%. Shops from the category of Health, beauty and perfumeries, from which only drug stores were generally open, dropped by 13%. Sales by mobile operators showed a decrease of 18% in turnover. Other categories struggled with about a 30% drop,” stated Klára Bejblová, an expert in retail market research and consulting for the Czech Republic and CEE.
The average amount of rental levels last year decreased by 0.9% year-on-year
In 2020, the average rental levels decreased for the first time in four years. Of course, a decrease of 0.9% does not represent anything all too dramatic in comparison with the drop in the average turnovers. Government compensation programmes and relief on the part of the shopping centre owners contributed to this. The incentives offered by centre owners last year were primarily in the form of rent holidays, regularly in exchange for an extension of the lease. This approach enabled owners to generate at least the income required to maintain the smooth operations of the centres. The average rent of newly-leased spaces show a worse result, however. When taking into account the index levels, which amounted to 3.2% according to the Czech Statistical Office, it fell by almost 18% year-on-year.
“The situation differed from sector to sector, so even last year rental levels rose in some categories. The greatest increase of 8.3% was reported by Electronics. Their rental levels rose for the third year in a row, totalling 18.7%. The main reason was primarily the opening of smaller shops with specialised electronics, such as iStores, Xiaomi, Eta, etc. In spite of the fact that the goods from this segment are the most frequently-purchased goods online, this sector has found the optimum balance between its distribution channels, which led to a solid growth in sales in physical shops and was subsequently also reflected in the amount of the rent. Year-on-year, the second-largest increase by 6.7% took place in the sector of Household & Furniture, the driving force of which was primarily the Home Apparel. Over the last four years, it has shown a similar dynamic to the segment of Electronics which has seen an increase of 7.9% in rental levels. Both renegotiations of existing lease agreements and also, in part, the smaller sales area contributed to that,” described Jan Janáček, Head of Retail Leasing in CBRE.
One of the greatest decreases, on the contrary, could be observed in the area of Fashion, by 4.6% on average. And seeing that clothing brands are represented most in the mix of tenants, this situation also had an important effect on the overall average rental levels in shopping centres. The greatest pressure on decreasing the rent was primarily on the part of those retail operators, who lease the retail units in sizes from 500 to 1 000 m2 and take up approximately one-quarter the space of this segment. For them, the year-on-year drop in rent was by 8.8%. There was also a decrease in the average rent by 8.6% for the Lingerie segment. Another sector that was hit from the perspective of the collection of rent was the segment of Accessories. In this category there was a decrease of 4.9% in rent. Shoes / Footwear, which we also include in this area (and they make up about 85%), actually saw a decrease of 5.9%. Of course, if we evaluate the individual sub-categories, the greatest decrease in the rent was for Travels in the amount of 12.5%. In the case of the sizes of the categories of units, where the largest units above 1 000 m2 that are occupied by anchor tenants placed pressure on the rent in recent years, the year-on-year decrease of the average rent ranged from 0.1% to 3.8%. Only the two smallest categories with sizes up to 100 m2 resisted the pressure and recorded an increase on the average of 1.5%.
Shopping centres footfall decreased by almost 30% on average
The total annual footfall in shopping centres represented in the Shopping Centre Index surpassed 66 million visitors in 2020, which represents 127 customers per square metre and a year-on-year decrease of 29%. The beginning of the year showed a similar dynamic as in previous years, though the closure of shops and services during the first lockdown caused a substantial decline in the footfall. In April, that was 67% less than in 2019. In May, where the gradual easing took place, the situation improved somewhat, though the footfall was still from 15% to 20% less than in the previous year. There are a number of reasons: the unwillingness of people to visit public spaces, the protective measures, the fear of a coming recession and also the increased demand for online shopping. During the summer months, however, the footfall started to grow and in the second half of August it even reached almost a similar level as in 2019. Then the second wave arrived, and a large number of shops and services were closed again, which resulted in a year-on-year drop in footfall by 63% in November 2020. In December, the shops opened again, though the expectations regarding Christmas shopping were not fulfilled and the footfall remained 29% lower than the previous year. After the Christmas holidays there was another hard lockdown, which lasted, with a few exceptions, until this May.
“Just like the turnover, the decrease in the footfall differed depending on the specific shopping centres. The lowest decrease, by an annual average of 22%, occurred in centres with a large share of units with basic needs and services, such as grocery stores, pharmacies, chemists, etc., which could remain open in spite of the restrictions. The greatest decreases, on the contrary, by up to 32%, were recorded by shopping centres focusing on experiences with an extensive mix of tenants and an offer of leisure activities,” stated Jan Janáček.
Last year’s good news? Czechs spent more during each visit of a shopping centre
It has been shown that the past year accelerated some society-wide changes that were reflected in a change in shopping behaviour. People came to shopping centres less often and on purpose, but meanwhile they spent more than before. Thanks to this, the value of the average basket increased by 5.7% to 233 crowns per visit. “It is evident that time, as a commodity, will be accented even more in the future: shopping centre customers will expect a complex offer, that will satisfy more than just their shopping needs. In addition to standard shopping, they will also take care of matters in a bank or post office, while their children will spend time on interesting and meaningful activities,” commented Tomáš Míček, who concluded: “The average vacancy rate increased by 0.8 of a percentage point, so at the end of 2020 it reached 4.2%. It is a comparable level with past years, so nothing dramatic. The future of shopping centres is now in the hands of both the owners themselves, and their tenants. They will have to cooperate to gradually join online and offline shopping by introducing various forms of outlets and improving customer service. Brick-and-mortar shops will gradually transform into multifunctional spaces, which will not only operate as showrooms for the presentation of goods, but also for improving relations with customers. It follows from our surveys that a third of shopping centre tenants are planning changes in their shops in relation to modernisation or improving the customer experience. In addition to the redesign of interiors, this predominantly has to do with the greater use of digital technologies, including self-service terminals and contactless payments, as well as user-improved e-shops.”
An overview of government programmes that the Ministry of Industry and Trade provided to businesses as compensation for the period shops and services were closed:
COVID – Nájemné (COVID – Rent): Call 1 (support was provided for the period from 13 March to 30 June, 2020), Call 2 (support for the period from 1 July to 30 September 2020), Call 3 (support for the period from 1 October to 31 December 2020). The amount of the support amounted to 50% of the decisive rent, while the applicant had to pay the remaining 50% himself before submitting the application. The maximum amount of support for a single applicant amounted to 10 million crowns. The condition for Call 1 was also the provision of a discount by the landlord in the amount of at least 30% of the decisive rent.
COVID – Gastro – Closed premises: Support provided on expenses for the operation and maintenance of business activities such as personnel expenses, expenses for material (including leasing, for example), depreciations, taxes and fees, loan payments, overhead expenses, etc. The amount of the support amounted to 400 crowns for each employee and day, during which the activity was restricted on the basis of government measures.
Antivirus – support of employment: The contribution for the full or partial payment of wages, which the employees are entitled to due to obstacles on the part of the employee (ordered quarantine) or on the part of the employer (closed premises due to government decree).
ABOUT THE SHOPPING CENTRE INDEX
The CBRE Shopping Centre Index is the only market indicator that constantly monitors the performance of regional shopping centres in the Czech Republic, and it has done so ever since 2013. It analyses a sample of 20 shopping centres in the regions (outside of Prague), which represents almost 1 600 shops and reaches 575 000 m2 of retail space. That is more than 35% of the volume of shopping centres in the regions, which a total of 66 million visitors visited last year. The average regional shopping centre has a leasable surface of 28 500 m2. Approximately 70 to 85% of the space is comprised of the shopping gallery, with the remainder taken up by grocery chains, multiplex cinemas and other leisure concepts, such as children’s corners, bowling alleys, casinos or car washes, which are found in up to a third of the centres. These segments (apart from the shopping gallery) are not part of the index, because they could cause a distortion of the results.
ABOUT CBRE RETAIL
CBRE is an expert on the management of retail space in the Czech Republic: it currently manages 25 retail properties with about 500 000 m2 of retail space. It provides extensive and comprehensive consultation in the area of the purchase and sale of retail assets, the leasing of retail space, the representation of tenants when entering the Czech market and the optimisation of the network of shops and also the administration, marketing and concept design of shopping centres and retail parks. Last, but not least, it is the leader in surveys of the retail market and customer behaviour.