Property Times asked the experts and participants of the retail real estate market what is the current situation in relations between the SEC and tenants and what factors have a significant impact on it. Market of Compromise
The restoration of consumer demand necessitates the opening of new stores and the transfer of old ones. Major international brands are considering entering the Ukrainian market or have already announced it. This encourages the development of brands that are present in the market. At the same time, the offer of retail space for a long time did not expand. These trends are noted by the majority of the experts we interviewed, but their assessment of the relationship between tenants and landlords is different.
Ekaterina Vesna, the head of the JLL retail space department in Ukraine, stresses that only a competent approach to the formation of rental rates and the ability of a developer and a tenant to take on their risks will enable quick and high-quality development of new projects.
According to Vitaly Boyko, the preservation of the border situation will be facilitated by the fact that "some objects will strive to fill and fill up" expensively ", while others will reduce rates in order to get a retailer and a consumer."
Rostislav Simonov, head of strategic consulting at UTG, believes that due to a reduction in developer activity in 2016, a decrease in the average vacancy rate of up to 5% and a deficit in retail space, the market situation today is more favorable to landlords.
The same opinion is shared by Maxim Gavryushin, commercial director of the Budhaus group of companies. "For 2017 in Ukraine in the first ever professional market of commercial real estate has not been put into operation a single shopping center. 2018, too, will not be very rich in such events. The beginning of large construction projects in 2017 also did not take place, therefore, in 2019-2020, at best, the increase in areas will occur due to the completion of projects frozen in 2014-2015, "explains Gavryushin.
The commercial director of the "Darynok" mall, Antonina Arbuzova, calls the situation "the buyer's market": "Only by reaching a compromise, the landlords and tenants together will succeed in achieving a strengthening of the market position and attracting the audience to their commercial site," she notes.
Transparency and willingness to learn
For almost 4 crisis years, landlords and tenants have learned to seek a compromise in respect of rent from turnover and the calculation of the currency index. The market has the rules of the game that most professional players accept. At the same time, there are problems related to the opacity of doing business in Ukraine.
"In Ukraine, there is no system that can provide correct information about trade turnover. Many retailers do business not as legally persons, but as private entrepreneurs, and have no obligation to install cash registers, "Vitaliy Boyko explains.
There is as yet no optimal technical solution for controlling the turnover of private entrepreneurs. But there are tenants who intentionally understate the turnover data in order to reduce payments tied to it. "Some of the tenants do not provide fair turnover, which makes it impossible to analyze their real effectiveness and can complicate the negotiations. We have a deep expertise and data on the turnover of tenants in our shopping centers and the market, and always make our assessment. At the same time, they are sure that both sides will benefit from openness in this issue, "says Anna Chubotina, director of the department of retail space at Arrican Real Estate plc.
Another problematic issue is the unwillingness of some tenants to participate in joint marketing programs with the SEC. "We still face the reluctance to participate in joint marketing campaigns, provide timely information for placement in social networks, etc.", notes Anna Chubotina.
The effectiveness of joint marketing programs is confirmed by most experts. "The experience of Lavina Mall confirms that retailers who worked on marketing activities immediately had a high turnover. Those who consider it possible to save on this, lose a large share of turnover, "- emphasizes Vitaly Boyko.
Also, market participants note an increase in the number of potential tenants who do not want to carry out construction work at their own expense, and reluctance to fix the rates in dollars due to the continued weakening of the hryvnia.
Currency swings have provoked the behavior problem of tenants: they are used to asking for a discount. "Against the backdrop of the growing dollar rate, the landlord tried to stabilize the situation with tenants at its own expense for a long time, giving a discount. Now tenants, as soon as they lose sales, immediately go for a discount, "explains Lyudmila Vilischuk, head of the lease department at Lavina Mall. In her opinion, the discount is not a way out, the lessor should not subsidize the tenants at his own expense: "If in a shopping center among tenants of one group of goods one tenant reduces sales, while the others have an increase in attendance and turnover, the tenant should think about analysis, determine the factors of the fall in its sales and work on the errors, "- says Vilishchuk.
New brands, formats and quality of relations
"Everything is simple here: tenants are waiting for high-quality traffic, and as a consequence, high turnover, landlords - high turnover, to provide both sides with the desired yield," - says Anna Chubotina. With this concise formula, all market participants agree. "Tenants expect from the mall permanent work aimed at increasing the flow of visitors, including marketing activities. And the SEC expects from tenants to participate in the same marketing activities, work with showcases and regular updates of the product range, "- specifies Rostislav Simonov.
The consumer experience comes to the forefront. "Given the active development of e-commerce, landlords expect tenants of a certain evolution: that the shopping spaces, in addition to the main function - sales, could offer their customers an interesting customer experience. In turn, tenants expect from the lessor that he will use all the marketing and management resources of the shopping center to attract the target audience, increase the loyalty of visitors, encourage a repeat visit, increase the average check, manage the length of stay in the store, the absence of "dead" zones, - lists Evgenia Solomatina, head of the department of retail real estate, Cushman & Wakefield in Ukraine.
"You can build a decent facility, engage in advertising and marketing, but if the shopping center is not an interesting tenant, there will be no success. And vice versa - in the mall where there is no traffic, an uninteresting tenant, the visitor "forgets the road", as a result - the tenant has low sales, "explains Lyudmila Vilishchuk, the synergy of the shopping mall and retailers.
Tenants are waiting for quality traffic
Vitaliy Boiko adds that the shopping and entertainment centers follow the changing consumer preferences around the world and are waiting for new brands and new concepts: "Despite the yields of new retailers, Ukraine remains unsaturated in terms of the number of brands. Therefore, developers and SECs are waiting for new brands. " The expert also notes that some stores continue to work in old concepts that have lost relevance. And for new stores it is very important to open in a full-fledged concept - not discount or reduced, but in the way that the brand develops all over the world.
Search for common ground
"Effective partnership contributed to the immersion in the specifics of retailers. In the negotiations, we operate with market data, analysis of our projects, analyze turnover by category, share OCR (occupancy cost ratio), compare with market benchmarks, etc. This approach was justified, we quickly find a solution with our partners, which along with other factors, such as growth in attendance, optimization of the tenant mix, changes in the marketing strategy for promotion of projects, helps to reduce vacancy rates in our shopping centers to the level of technical or zero, says Anna Chubotina.
Experts call joint formats and events, advertising campaigns, educational programs and exchange of statistics the main formats of interaction between retail and retail centers and retailers.
In Lavina Mall in the period when the SEC had low attendance rates, they developed joint marketing programs with retailers, which had low turnover. "Working with tenants allowed for the summer to create serious prerequisites for high attendance. When the shopping season began, which coincided with the opening of new anchor stores, visitor flows and turnover showed unprecedented growth, "says Vitaliy Boyko. Now Lavina Mall is implementing a program of joint events. The tenant is developing the event, and the SEC takes on the alert. "The additional activity created together with the trading operator is more competent, as retailers better understand the competitive advantages of their business," Boyko explains.
In Arrican actively implement educational programs. The program B2B Upgrade by Arricano, aimed at improving the quality of customer service, since its launch took part more than 1000 people. In December 2017, the company launched a joint Retailers program with an educational video program Retail Consultant, whose goal is to support retailers who want to use modern knowledge and technology to increase business performance.
Regions: lack of quality areas and zero vacancy
The situation in the regions is different from the capital. The level of saturation with quality areas across the country is different. "In Kharkiv and Zaporizhzhya, the lowest indicators per 1000 inhabitants - about 130-140 square meters. m. Lviv, Dnieper and Odessa have already stepped over 240-250 square meters. m per 1,000 inhabitants. But they are united by the fact that the vacancy in the existing shopping centers tends to zero, "says Ekaterina Vesna. At the same time, according to Rostislav Simonov, only single objects in the main cities of Ukraine have built up the right relationships with tenants and active marketing activities that allow increasing flows.
"Network retailers are still weak in the regions. There are not enough quality facilities, mainly work with local operators, and they are, as a rule, extremely inflexible, "adds Lyudmila Vilischuk. She also notes significant differences in the financial situation in Kiev and the regions and, at the same time, the improvement of the situation recently: "Ukrainian developers are finally beginning to invest not only in the capital's real estate, but also in the regions. In parallel, the management companies increase the level of facilities in the regions, thereby creating "interest" of the facilities, "says Vilischuk.
The situation in the mall, which are managed professionally, is strikingly different. "Everything depends on the quality of the shopping center and competition. Rent rates in our regional shopping center "City Mall" in Zaporozhye can envy many metropolitan shopping centers. This is explained by the fact that this project to date is the undisputed leader in Zaporizhzhya, competition is weak, demand exceeds supply. In the project for the fourth consecutive year, zero vacancy and a long waiting list, - says Anna Chubotina. - Evidence that regional projects are of interest to domestic and international network operators is the fact that over a year of operation we replaced more than 50% of the tenants of the shopping gallery of the TRC "Solar Gallery" in Krivoy Rog. They attracted such operators as LC Waikiki, Jysk, New Balance, Goldi, Vovk and others. As a consequence - the growth of turnover of tenants, reducing vacancies to the level of technical and waiting list. "
NAI Ukraine operates as a broker with two retail properties in the regions - in Dnepropetrovsk and Ternopil. "The demand for creating concepts in the regions has been restored, we are doing research for the majority of large cities of Ukraine," Vitaly Boyko describes the situation. - Many affordable & fast fashion retailers open their stores in the regions, which creates demand for the area in shopping centers, and since commissioning of new areas in most cities was not, this allows the owners of operating shopping centers to either increase occupancy or improve the economy of the facility " .
When deciding on a lease in the region, retailers have to adjust the format. "Regional shopping centers are not always multifunctional and do not have a large coverage area, which leads to the fact that the tenant, when considering regions, can reduce the format of the store, work at a minimum rate or a percentage of turnover. Taking into account the current market, the Kiev SEC can put forward more stringent conditions for the selection of tenants, commercial conditions, the conformity of the concept, in contrast to the regional, where, taking into account the vacancy, landlords make certain concessions so that the SEC can pay back its operating costs, "explains Evgenia Solomatina .
Earlier it was reported that the leading regions were named for the rate of construction in 2017.