Redistribution of the market: Shopping malls affected by shelling are being partially rebuilt, but their rates are falling
What is changing in the format of retailers' work
Anatoliy Shkriblyak's Budhouse Group invests €18 million in the reconstruction of the Nikolsky Shopping Mall in Kharkiv. The underground floor, partially the ground, the first and completely the second floors have already been opened. By the end of November, they plan to complete the works on the third floor.
In total, at least 25 business and entertainment centres with 900,000 square metres of total area were damaged by russian shelling in Ukraine. As of September 1, direct losses of shopping malls amounted to $362 million.
Mind examined whether it makes sense to restore malls now – amid falling purchasing power of the population and a decrease in the number of entrepreneurs-tenants.
Who is being renovated? One of the largest shopping malls in Kharkiv, Nikolsky (total area – 106 000 sq. m), has a long history. Budhouse Group started its construction back in 2012. Initially, it was planned that the mall would be put into operation in 2015, but the opening date was postponed several times for various reasons.
Finally, the mall opened in May 2021. But less than a year later, it was damaged by shelling from russian Smerch MLRS. Some structures, interior decoration, and facade elements collapsed in the mall.
As early as in April, the owners decided to restore Nikolsky, and works began in May. "Kharkiv is now home to about 1 million residents, so it is important that the minimum infrastructure continued to work," says Maksym Gavriushin, chief operating officer of Budhouse Group. First, the mall opened the underground floor, then – partially the ground and first floors, and completely the second floor. The third storey is scheduled to open on 18 November. There are also some exterior works that will last six months.
In general, about 25 shopping centres in Ukraine were damaged by russian shelling. Their repair depends on the region and the amount of investment, says Hanna Koriagina, CEO of Nhood Ukraine. Thus, according to her, the capital's Lavina Mall (total area 170,000 sq.m.) of Vagif Aliyev and Retroville (120,000 sq.m., Stolitsa Group, Vlad Molchanov) resumed their work in May and August respectively. According to her, Riviera mall (85,000 sq.m.) in Odesa has been actively preparing to resume its operation – Auchan and Decathlon stores were damaged there due to shelling.
Kharkiv's Karavan mall (total area – 84,000 sq. m, owned by Oleksandr Yaroslavsky), however, was damaged by 60%. The losses have not yet been finally estimated, but according to preliminary calculations, the lost profit and reconstruction costs amount to about $ 25-30 million. Karavan also adds that they plan to rebuild the mall, but the exact timing is still unknown.
Is there any demand for emporiums during the war in general? Although many lifestyle centres have closed, the vacancy rate in them has increased. Now, 18.7% of retail space in the malls are empty, according to the consulting company UTG. For comparison: In 2021, this figure was at 11.5%. The trend is related to the closure of many retailers' outlets.
The decrease in demand has led to declining rental rates. For example, in the "kiosks, small-scale stores" category, rates fell from $420 to $250 per 1 sq. m, "fashion gallery" – from $68 to $30, "large-scale clothing stores" – from $37 to $18. In the "top" shopping and entertainment centres in Kyiv rents are $ 30 per square metre per month.
"The current commercial policy, namely, the agreement between many tenants and shopping centres to cooperate exclusively on the basis of turnover payments and OPEX (service payment) complicates a little the assessment of average rental rates," says Hanna Koriagina.
But when the situation is stable, the demand will gradually recover. According to Andriy Zhuk, co-founder of the Association of Retailers of Ukraine, if 29% of the total number of stores that functioned before the war did not work by the end of March, then only 9%, by the end of September.
But after the massive shellings in October, sales in most stores fell by 10% to 50% compared to previous weeks. "A manager of a large chain estimated that in October, due to air raids and blackouts, stores did not work 17% of their working hours," says Andriy Zhuk
So does it make sense to resume work? According to Maksym Gavriushin, Nikolsky has no contracts with tenants that were broken. Now about 60 stores work or plan to resume: "Silpo, Foxtrot, Eva, Zolota Kraina, Yabko, Crocs, etc. "But operational activities are not profitable," Gavriushin emphasizes.
Hanna Koriagina is sure that the opening of retail space has perspectives, but a number of factors must be considered. "It is, above all, the safety of doing business in general, demographic changes in the region with potential for development (internal displacement of population), business relocation, portrait of future customers and the ability to provide operators with goods in the chosen location," she lists.
Nhood Ukraine notes: if malls in the West of Ukraine are considered for the future, in particular by international operators, the situation in the South is much more complicated.
The new "trend" is the to open shopping malls in the format of community centre (district format), as well as to reconceptualise objects adding new functions – in particular, the malls LAZ 695 and Fabrik in Lviv, Maidan in Chervonograd, Prut in Kolomyia.
Restoration of a shopping centre after shelling is a luxury that costs the owners millions of dollars, admits Andriy Zhuk. But in an optimistic scenario, such objects will have an advantage. As an example, the expert cites Kharkiv, where many malls do not work. "And buyers went to those facilities that function. A redistribution of the market occurred. Working malls will win in the long run," he says.
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