A conservative growth scenario sees e-commerce in CEE-6 expanding 8.8% per year from a baseline of EUR 13.1bn, to EUR 20bn. According to Colliers International’s latest logistics and retail research report, Survival of the fittest, there is still room for online and conventional channel retail to continue co-existing side by side in the short to medium term in the CEE-6 markets, with Romania and Bulgaria displaying the biggest upside potential.
The solid further EUR 71.5 bn expansion of retail sales out to 2022E, 4.9% growth per year overall, creates enough evolutionary room for multiple concepts to continue thriving.
“We acknowledge that bullish estimates may put the size of the online market closer to that mark even today. But even in a more “bullish” scenario of e-commerce capturing 10% of all retail sales by 2022E, expanding to EUR 34 bn, we foresee a decent majority of incremental sales still occurring through the traditional, established channels”, Mark Robinson, CEE Research Specialist explains.
By comparison with the Visegrad-4 countries, which could absorb without any issues a growth of 5-10% of their current modern retail stock by 2022, in Romania and Bulgaria, the growth potential could be 20-30% given that regional cities are less developed, according to Colliers estimates.
Is there space to expand?
The baseline expansion of demand via online channels and products delivered will generate, according to the Colliers calculations, a requirement for 198,000 sqm of dedicated logistics/warehouse distribution space per year in CEE in 2018-2022, if the assumption is made that present capacity is fully-utilised. This compares to the supply chain for conventional retail in the period requiring 865,000 sqm of logistics/distribution space per year to service increased sales.
Adaptation rather than extinction
For the retail sector, the recent „showrooming” concept should help the survival strategy. The sheer rate of increase of overall retail sales means that it is very difficult to portray that omnichannel/traditional retail growth will taper towards nothing, even considering inflation. Significant wage increases, strong GDP growth and the increasing availability of credit should keep retail afloat.
Growth for CEE logistics real estate
The combined 1.063 mn sqm of space required in our conservative baseline 9% expansion of ecommerce within 4.9% overall retail sales growth equates to 3.3% of present modelled logistics/distribution stock in the CEE-6. But more interestingly equates to 62% of Q2 2018’s active construction figures and 87% of modelled take-up for the last 4 calendar quarters.
It is in the scenarios of higher proportions of retail sales being online that additional logistics/distribution capacity will be required. For e-commerce, we model a sale per sqm ratio about half that of conventional/omnichannel retailers. This difference generates an absolute terms requirement for space of an average of an extra 107,000 sqm per year in our “bullish” scenario in 2022E, where the share of e-commerce is just over 10%. By an ambitious“high” scenario, where e-commerce rises to 13.2% of retail sales on average across the CEE-6, the extra space required would be 263,000 sqm.
How will retail rents develop?
Negotiations and agreements on turnover rents and recognition of online sales are going to be required. But neither do the report sees large rent reductions, as the CEE-6 omnichannel/ traditional increment is still worth at least EUR 27 bn between 2018E-22E in the “high” scenario.