Retail sales growing faster as consumers spend at malls, Nepi Rockcastle says

Nepi Rockcastle, owner of premier shopping centres in Central and Eastern Europe says tenant sales grew faster in the third quarter of 2022 with high occupancies indicating strong demand for space.

In a business update, Nepi said it does not expect new Covid-19 restrictions in Central and Eastern Europe, which bodes well for its shopping centres.

“During the first nine months of 2022, and excluding hypermarkets, like-for-like tenant sales were 11.3% higher than 2019 and 31.6% higher than 2021,” CEO Rüdiger Dany said.

All retail categories recorded higher sales compared with 2019, while entertainment spend fell a further 13.1% from 16.7% during the first half of 2022, he said.

Health and beauty recording sales growth of 31.2% and fashion complements 25% were the best performing retail categories during the reporting period.

Fashion, the largest category with 45% of total sales, exceeded pre-pandemic levels with a 3.4% increase on 2019 and 23% on 2021.

JSE-listed Nepi Rockcastle, which acts as a rand hedge for SA investors who want exposure to European commercial real estate, has a presence in nine countries in Central and Eastern Europe.

Dany said like-for-like footfall has stabilised compared to 2019, but over nine months, total shopper visits were 12.4% lower than 2019 but 19% higher than 2021.

“The overperformance of sales compared to footfall was driven by a large increase in average basket size despite a challenging macroeconomic environment,” he said.

Growing demand for retail space saw Nepi sign 739 leases for more than 153,000m², which is about the size of super regional malls in SA such as Gateway Theatre of Shopping in KwaZulu-Natal and Sandton City in Johannesburg. Of these leases, 47% were new, with international retailers accounting for 48% of newly let space across the portfolio.

The take-up has seen vacancies reduce significantly, and Nepi said its development pipeline to meet demand is on track.

In September, Nepi completed the acquisition of joint-venture partner’s 50% share in Ploiesti Shopping City for €55.5m.

On November 14, the company entered into an agreement to acquire a 100% interest in Copernicus Shopping Centre, a dominant outlet in Torun, Poland. This centre is expected to generate a net operating income of €9.6m annually in the medium term.

“We want to increase portfolio concentration in investment grade rated countries and focus on core dominant properties,” Dany said.

During the reporting period, net operating profit reached €297m as the company saw a fall in Covid-19 related discounts of about €36.9m in 2021.

At the end of September, Nepi had a strong balance with €439m in cash and €620m in available committed credit facilities with gearing reaching 31%, below the company’s strategic threshold.

Due to the recent performance, Nepi has revised its previous earnings guidance for the 2022 financial year from 33% to 38%. Market reaction to this revision saw the share price rise 0.68% to R97.36 by 2.20pm on Thursday.