Around the world, 2020 was a difficult year for the retail real estate sector. While the COVID-19 pandemic revealed weaknesses in the retail category, it also highlighted promising trends and the need for qualified personnel, crisis management, and high-quality analytical research.
Indications of change
2020 created a paradox for Ukrainian retail real estate. Due to restrictions during the pandemic, foot traffic at shopping centers in Ukraine decreased by 30%–40%. Despite this, retail turnover increased by 10.7% at the national level and by 12% in Kyiv. This positive dynamic for retail can be explained by changes in sales structure, the lack of opportunity to travel abroad, growing consumer interest in online shopping (which increased by around 25%), and the attraction of new consumer age groups.
The decline in foot traffic and the subsequent increase in vacancy, as well as a decrease in rental rates, most significantly affected older, obsolete shopping centers, which had serious conceptual flaws. The average vacancy rate in Kyiv rose to 13.4%. At the same time, shopping centers that had clearer concepts were able to maintain both vacancy rate and operating income at close to pre-crisis levels.
This confirms that the pandemic, like almost any external crisis, was not the main reason for the decrease in foot traffic and increase in vacancies—it only exacerbated an already difficult situation for shopping centers. More than 90% of such issues are not the result of external factors but of management errors. The main problems were, as always, inefficiency of personnel, incorrect priorities, and insufficient knowledge and experience. A decrease in the key performance indicators of a shopping center should be a clear signal for owners to seek the help of property management specialists.
The state of retail property in Ukraine
In a way, the COVID-19 pandemic has highlighted the current state of the retail real estate market in Ukraine. It is quite young compared to Western Europe and the United States. There are not many old shopping centers in Ukraine yet, and every year, developers build more shopping centers. The main task for retail real estate, then, is to ensure that these new shopping centers are properly organized to strengthen and distinguish their concepts, so they don’t become obsolete.
With 20 years, 40 shopping centers, and nearly 10 million square feet worth of experience, the Ukrainian Trade Guild (UTG) has assisted shopping centers with the complete cycle of creation—from the initial formulation of a concept to the full management of a functioning shopping center. In our experience, we have found that the most difficult period for the development of any shopping center is the first year after opening.
For example, some stores end up not appealing to customers, while others quickly discover that they don’t have appropriate resources and are forced to close. Often, the result is a significant adjustment of the tenant mix during the first year.
In parallel, in the first months of the new shopping center‘s operation, specialists from the maintenance team, security personnel, and other departments work together to eliminate flaws and customize the management features of a particular shopping center. Property management specialists can coordinate and manage the relationships among the shopping center’s various staff departments and its retail tenants to form and implement an advertising campaign. Thus, we are able to fine-tune how the shopping center operates and increase its attractiveness for customers.
Benefits of crisis management
Another popular property management service in Ukraine is stabilization management services; in other words, crisis management for shopping centers that have been in operation for a long time. This is a service for shopping center owners experiencing rapidly declining traffic, growing vacancy, and decreasing profits. In most cases, the existing management of the shopping center cannot solve such systemic problems on its own. In such a situation, they need a competent, critical outside perspective to provide new solutions to escape the crisis.
What are the advantages of involving experts in crisis management? The underlying reason for all business problems—shopping centers included—is lack of staff competence. In a growing market, almost any management actions will lead to positive results, but a crisis requires a quick response, flexibility, and nonstandard solutions. Diagnosing underlying issues of a shopping center’s operation is a difficult task. To provide the kinds of crisis management services that we do at UTG, a company must be able to create a portrait of its shopping center. This means analyzing consumer activity, examining changes in the shopping center’s needs, and identifying any management errors affecting the relationship between the property and its tenants. We perform these tasks daily.
Such a comprehensive analysis is possible only if specialists have significant volumes of statistical information based on a full understanding of industry developments, global trends, and the latest best practices. This is all in addition to regular communication with interested potential tenants or other new opportunities. It makes the most sense to outsource services like these to specialists.
Once we undertake this analysis, we use it to justify a change in strategic direction. External experts work with the shopping center’s team to set up a new management system that will be more effective, and then conduct a technical audit to optimize costs and plan revenue growth. This often results in changes to the number of staff members on the property management team as well as adjustments of their job functions.
The end of pandemic-related quarantine restrictions provides excellent reassurance for retail tenants. Once we have done a detailed analysis and identified which retail segments have suffered the most, we can move forward with the replacement of tenants, including anchor tenants, if necessary.
This is especially true of the entertainment segment, where there was a significant loss of customers and participants in the market due to quarantine restrictions. Once again, specialists outside of the management company are going to be better positioned to locate new tenants and transform an unattractive section of a shopping center into one that all visitors want to see.
Property managers will also need to update marketing decisions in accordance with new trends. For example, before the pandemic, advertising inside public transportation was one of the leading formats; now, that method is less effective. People are now less likely to use public transportation, and the mood there is usually far from positive, so we need to find more effective tools for attracting visitors to the shopping center.
The outlook for shopping malls isn’t entirely negative. Shopping centers have the ability to provide consumers with positive experiences that online services cannot match, and people still want to go to the mall despite the growing popularity of e-commerce.
Developers and management companies must provide visitors with a space where they can spend their time safely and in a meaningful way, experiencing positive emotions from shopping and high-quality services. Property management specialists are in a position to understand how to implement such a system and make a shopping center truly unique.