Latio: Stabilization is observed in the segment of retail space in the largest cities of Latvia
June 17th, 2010
Riga
Stabilization is observed in the segment of retail premises in the largest cities of Latvia after the downturn experienced before, and lease charge is not likely to fall any more, indicates the report on retail premises in the largest cities of Latvia prepared by Latio.
Following the sharp drop of retail trade volumes in the previous years, slightly better trends have emerged in the branch this year. It is too early to speak of sustained growth of retail trade volumes, albeit results of merchants over the first months of the year as well as several other economic indices show a certain stability and give hope for eventual growth of buyers’ activity.
Total turnover of retail trade enterprises has increased 13% in March and April 2010 as opposed to the first couple of months of the year. Though actual trade volumes differ, this growth percentage resembles the one observed in the retail branch in 2006 and 2007. This is one of the indicators showing improvement of buyers’ activity. Statistics also reveal that correlation between trade of non-food goods and trade volume of grocer’s shops has changed within gross volume of retail trade. Trade of non-food goods has been accounting for 40% of gross turnover for the last one and a half-year. Between 2006 and 2008, these goods formed a half of the gross turnover.
Along with diminishing demand in premises from lessees, lease charge of retail space of various types has decreased 30% to 70% in the largest cities of Latvia since 2007 and 2008. The sharpest changes of lease charge, prices and occupancy of real estate related to trade branch were experienced in 2009. Currently, lease charge of retail premises meeting needs and demands of lessees has reached the bottom in the largest cities of Latvia, and it is not likely to be reduced any more. An essential rise of lease charge cannot be predicted either in the near future since there is excess supply and this correlation will change gradually along with the economic situation improving.
The situation in the segment of retail space differs in each of the largest cities of Latvia outside Riga, albeit common features can be traced for all of them: downturn of lease charge of late years and its becoming stable this year, rotation of lessees due to less successful merchants leaving the premises while those stronger economically moving to better ones, expansion of vacant space in separate areas of cities or in shopping malls, demand in small space. In comparison with the last year, owners and house-managers of premises have adapted themselves to the existing market situation and possibilities of lessees better. The strongest demand is in small space in all cities – up to 100 square metres. The biggest interest of merchants and service-providers will be retained right in small space also when economic activity will be recovered.
Shopping malls had different success in their work in the cities of Latvia. Like in Riga, the biggest problems are faced by those shopping malls that are dislocated unsuccessfully or a wrong concept for the mall has been chosen thus being the reason for low circulation of customers, also in other largest cities of Latvia. In a favourable market situation, operation of such shopping malls cannot be deemed successful either but the faults committed while creating the malls affect the operation thereof much bitterly during economic crisis. With economic situation getting worse, such shopping malls suffer first – lessees abandon them, and the owners of the malls are forced to reduce lease charge below the average market rate.
Decrease rates of gross domestic product has become slower, along with other economic indices showing improvement, though it cannot be yet considered that the bottom of economic decline has been overcome. If economic activity grew in the middle of the year after the bottom has been reached, increase of occupancy rate could be expected for retail premises in the end of the year in the largest cities of Latvia, as well as a slight rise of lease charge for those premises being in the strongest demand by lessees.
In the report on retail space in the largest cities of Latvia, the situation was considered in the segment of retail premises in Daugavpils, Liepāja, Jelgava, Ventspils, Rēzekne, Valmiera and Jēkabpils.
Latio
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E-mail: latio@latio.lv
