Real estate is developing into an unexpected factor that could jeopardize the narrative of a sharp slowdown in appreciation in the near future, as the continued rise in rents destabilizes operating costs.
Over the past 18 months, several store owners have been asking for raises of up to 300%, say retail business owners and executives, who are talking about the creation of a new “bubble.” Some decide to pay the increased price, but some others leave.
In fact, the “taboo” of many years, such as closing loss-making stores, seems to be overcome by supermarket chains.
Padlock
From the beginning of 2023 until today, AB Vasilopoulos has closed 6 stores in Attica, Thessaloniki and Crete, with the employees being transferred to other stores in the chain. The reason, as mentioned in “Vima” by Mr. Nikos Lavidas, Brand President of the company, is solely the skyrocketing rents and above all the unreasonable demands of some owners.
“The real problem is not the annual rent increase but the increase that the landlords are asking for the lease renewal. There is currently a store in our network in Attica whose lease expires in two years and we went to negotiate with the owner about the renewal. From the rent of 15,000 euros that we pay today, he asked us for 35,000 euros in order to sign the new contract!” says the head of AB Vassilopoulos.
“Prices are out of order”
The management of the Diamantis Masoutis chain expresses approximately the same views. “There is a lot of pressure to increase rents” said Mr. Yannis Masoutis in response to a related question on the sidelines of the opening of the largest Masoutis store in Corfu.
“We are making an effort to negotiate with the owners to stay within a reasonable framework” pointed out the purchasing manager of the northern Helladic chain, even saying that they may not accept the new terms of the owners for one or two stores.
The limit of survival
It should be noted that in order for the stores of supermarket chains to have a reason for existence, i.e. to make money according to what is commonly called, the rent should not exceed 3%-4% of their turnover, retail representatives note.
However, according to the regulation of the Ministry of Development for commercial real estate leases, from January 1, 2024 until December 31, 2024, an adjustment of the rent amounting to a maximum of 3% of the rent for the year 2023 is allowed. It is recalled that a similar ceiling had been implemented this year as well, but also in 2022.
The strategy
Indicative of what is happening in the commercial space market is the strategy followed by Apostolos Vakakis, main shareholder and administrative leader of the Jumbo group. Now, as far as the network of stores is concerned, it focuses on real estate purchases in order to reduce operating costs.
According to Mr. Vakakis, in 2023 Jumbo’s investment program for the purchase of rented stores was particularly increased – approximately 50% over 2022 – in order to lower costs. The ideal goal is for all the group’s stores to be privately owned “but some are still resisting”, Apostolos Vakakis had characteristically emphasized a few months ago.
At the same time, Jumbo’s decision to invest in Trade Estates of the Fourlis group with a percentage of 1% was revealed a few days ago by Apostolos Vakakis, stressing that it was a “vote of confidence”. According to him, companies of this type (real estate investment companies – AEEAP) have a reason to exist if the conditions in Greece improve, underlining, however, that at the present stage they do not seem so attractive due to the high interest rates.
High flying
The high rents are also reflected by the Bank of Greece (BoG). Therefore, based on the latest published data collected by the Central Bank of Greece, in the first half of 2023 the rent prices of shops in Athens recorded a 6.3% increase compared to the first half of 2022, with the percentages of increases being increasingly higher from six months to six months starting in 2021, when annual growth was just +0.4%. Correspondingly, in Thessaloniki in the first half of 2023, the annual increase rate was 5.6%, i.e. the same as the rate for the entire country.
Limited Supply and Competition – The Air Effect Appears Again
The limited supply, the competition between retailers and the increased tourist flows in some areas, such as the center of Athens, keep the rents of the stores at their height in the most popular commercial “squares” of the country.
It is estimated that in 2023, more than 200 new lease agreements were signed for stores in prime locations in Attica, Thessaloniki, Patras and Heraklion, Crete, as stated in a relevant survey by the real estate consulting services company Cushman & Wakefield – Proprius.
High-street retail is also showing resilience in the medium term, as only 5% of respondents to the Cerved Property Services survey report that there will be a reduction in rents. What is also interesting is that the “wind” phenomenon has started to appear again, although, according to real estate market professionals, it is “blowing” very selectively. The “air” payment, another Greek “invention” to quantify the intangible commercial value of a store, was a regular tactic during the fat cow era, but disappeared during the financial crisis. Today, “air” is paid in very special cases, mainly for some unique properties in Ermou, Bucharest and Tsimiski in Thessaloniki, and is by no means a regularity in the market as it once was, say the brokers.
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