The different approach of retailers in the heat of financial crisis

‘Tenants have a higher bargaining power’

Carmen Rusu, Retail Consultant at real estate advisory firm King Sturge said the retailers had been more prudent when choosing locations. They actually step back to take a hard look at the costs for a new opening. Their expectations have changed; they want to pay lower rents, regardless to the location of the unit. Retailers don’t rush into renting commercial spaces anymore like they used to.

“Negotiations are not necessarily tougher, but rather more realistic, retailers claiming for conditions that would be natural in other marketplaces. A very important element is that they want to have the required funding and construction secured. This is why we are very careful not to stall projects or to keep them on paper”, Carmen Rusu (photo) told Wall-Street.

As for the evolution of rents in 2009, King Sturge advisor sees ongoing downtrend for two underlying reasons: the increase of commercial centers which entails a broadening of the offer, and the poor market conditions wherein retailers, experiencing sagging sales, will demand lower rents.

“This is a scenario wherein commercial spaces owners and developers start negotiating. The tenants will thus have a higher bargaining power”, stressed Carmen Rusu, adding that in 2009, the rents for commercial spaces will fall by 10-15% in some cases.

The developers of new projects will be forced to consider adding new offers, such as few months of tenure rent free, and financial contributions in space furnishing. The high-street rents will fall by roughly 15-20%, the office space stock increasing on a medium to long term.

King Sturge opened its subsidiary in Romania in 2006, providing a wide range of services for developers, such as Westhill Development or HSBC European Real Estate Fund.

‘We hope the market to shake off lethargy by end-2009’

Representatives of Israeli-based Plaza Centers say the tenants do have a higher bargaining power and talks could last longer. Although they haven’t received any claim to renegotiate rent, they don’t exclude the possibility in the future. If retailers’ expenses grew higher than revenues, they would attempt to cut rents, at least for now, until the market stabilizes.

“Given the poor market conditions, we deem these situations as normal. However, we hope the clouds to be clearer in 2009 for the market. We started the leasing procedures only for Csiki Plaza in Miercurea Ciuc, and the tenants’ approach is positive,” said Luc Ronsmans, Country Manager at Plaza Centers Romania.

We should expect new entries of retailers in local marketplace, he added, same as other investors leave it. We would probably see even expansions of active retailers, given the financial power of future investors, lending policy or industry’s recovery.

“We expect the downtrend to continue throughout the year, being absolutely normal if we take into account the shaky economic grounds that triggered major imbalances in demand and supply. Both landlords and tenants are trying to adapt to the new conditions imposed by the market and expect to see a stable industry at the end of 2009”, Luc Ronsmans concluded.