Any significant upturn in retail sales across The Baltic States is unlikely to come until 2011, and in the cases of Latvia and Lithuania, probably not until 2012, making new retail real estate financing almost impossible, according to speakers at the International Council of Shopping Centers (ICSC) Baltic States Retail Real Estate Conference, held in Tallinn, Estonia.
Estimating true value of real-estate portfolios presents a huge challenge for the industry in the Baltics, as retail sales are still heading downwards across Latvia, Lithuania and Estonia (though at a slower pace compared to early 2009), while there are no landmark deals to base such valuations on. Many loan-to-value covenants across the Baltic States are likely to be challenged during 2010.
The Scandinavian banks, which dominate the Baltic States banking sector, are not rushing to sell bad properties at current low prices, which would force them to write off huge losses. Instead, they plan to hold onto their assets until they see a market recovery. This will put banks among the biggest real-estate players in the Baltic States markets. Such an approach also makes any real transactions of retail real-estate in the Baltics virtually impossible at the moment, barring forced takeovers by banks.
But there is widespread belief that devaluation isn't the answer.
According to conference chair, Marcis Budlevskis, Director of Lease and Business Development at Linstow Center Management Ltd in Riga, Latvia: "Devaluation in one of the Baltic States would put huge pressure on the currency of the other two countries, but it is already taking place, in the form of decreasing income of Baltic residents through shrinking salaries. With the high proportion of euro mortgages and consumer loans dominating the Baltic States markets, devaluation of currency at the moment would mean another major punch at residents' real income level, particularly in the context of pending tax increases and increasing unemployment levels.
"With relatively low manufacturing contribution to GDP across the three Baltic States, and with a large percentage of Baltic States' manufacturing using imported inputs, devaluation at this stage would probably do more harm than good, adding to the already high level of uncertainty about the near future among Baltic residents. I believe devaluation would deliver the final blow to many retailers active in the Baltic States, who have learned how to survive 25-35% turnover drops comparing similar periods in 2009 and 2008, but they might find it impossible to handle 50%+ drops."
The best way forward for the retail real estate industry across the region is closer co-operation between developers, banks and retailers.
Building and using consumer databases is essential, enabling shopping centers to retain loyal customers and attract new ones through precisely targeted direct marketing messages. Management has to challenge long-standing conventions, to set new trends and work to seize market share from competitors.
The ICSC Baltic States National Committee, supported by ICSC, is helping the region's industry survive the current recession. As the shopping center industry's global trade association, ICSC has 60,000 members in 80 countries worldwide include shopping center owners, developers, managers, retailers, investors, other professionals and public officials.
Budlevskis said: "In today's tough markets, it is tempting to stop sharing valuable information with our clients and competitors, but I believe this is the wrong approach. Only by sharing ideas that have worked for us and by cooperating on topics of common interest can we recover faster. The ICSC Baltic States Committee provides a platform for co-operation amongst industry members. Next year we will be establishing National Work Groups in each Baltic country to tackle industry issues on a more local level."
Source: Nicky Godding Communications