By Marek Noetzel
The main challenges for the placemaking industry will be the slowing of major Western European economies, particularly Germany, and the political instability both there and in France. These factors could impact consumer confidence, which, in turn, may be negative for Central and Eastern Europe since there has been an historic correlation between the performance of the German economy and those of CEE. However, as certain CEE economies have grown, such as Poland, that correlation is diminishing. And the CEE consumer tends to be more resilient in the face of these types of economic and political uncertainties.
This may be beneficial for NEPI Rockcastle, since some Western European investors might need to reduce their exposure to retail real estate in CEE, presenting further buying opportunities for us.
Investor sentiment towards retail real estate improved throughout 2024. This is especially true of core assets, which have adapted and thrived post-pandemic and in the face of the competitive challenge of e-commerce. We believe that in 2025 we will see increased investor demand for these assets and consequently more capital flow into our markets, especially now that there is more stability in the markets (with lower interest rates and inflation). Furthermore, we have seen strong demand for modern retail spaces across our portfolio from international retailers, and operational costs have stabilized. This may drive yield compression, which would be positive for our business.
From an operational perspective, retailers are seeking large-format modern spaces so that they can offer consumers more experiences in stores. I call this ‘retailtainment’, and we expect this trend to continue. Our markets are also changing with the growth in off-price / discount retailers, a rebound in cinemas, and the strong performance in food and beverage operators.
ESG is the game changer for our industry and all that this will bring, especially any further sustainability regulation, which will affect the way we operate and have two major impacts on our market. First, major tenants might be unable to take space in a mall in the future because it doesn’t comply with their ESG criteria. Second, either much more expensive capital or no capital at all for certain assets that don’t comply with ESG criteria.
Given that retail is back in fashion after some very difficult years, I think we need to remain highly focused to support the momentum we see in our markets. A year of hard work beckons in 2025 to maximize the opportunities this positive sea change will bring in the attitudes towards retail real estate investing.
Marek Noetzel
Marek Noetzel is COO at NEPI Rockcastle.
