The pandemic won’t dent Central & Eastern European retail’s promise

Alex Morar

Alex joined NEPI upon its founding in 2007 and was initially involved in operational and reporting activities. He later assumed leadership of NEPI’s investment programme throughout CEE. He was appointed Executive Director in 2013 and Chief Executive Officer in August 2015 and has since grown the business from EUR 1.8 billion in assets to EUR 5.8 billion.

Central and Eastern Europe is unique. The region overcame an incredibly turbulent 20th century – in which it was shattered by wars and divided by revolutions – to become a dynamic and forward-looking part of the world that maintains rich and diverse cultures and identities. In short, the region and its people are incredibly resilient. This history means you wouldn’t bet against it making a strong recovery from the pandemic – NEPI Rockcastle CEO Alex Morar certainly wouldn’t.
Much of the region was still under communist government until the 1990s, which means that its physical retail sector is growing from a lower base than Western Europe. This, according to Mr Morar, offers investors far greater opportunity than elsewhere in the continent. “Central and Eastern Europe is an attractive and still-developing market. Unlike what one tends to find in Western Europe, the region’s physical retail sector is unsaturated and offers investors plenty of room for further growth,” he says.
This is particularly exciting when you factor in the robust frameworks that make it an investor-friendly destination. Alex points out that the fact that Central and Eastern Europe is “firmly within the EU and is therefore underpinned by shared cultural norms and an established rule of law. This protects investors and makes it a relatively easy and open place to do business.”
This is further compounded by the swelling use of English as a lingua franca among the region’s business community, which is a benefit that cannot be understated in a region of enormous linguistic diversity. In Eastern Europe, Slavic, Romantic and Finno-Ugric languages mix closely in a relatively small area of land carved up by winding borders.
A return to roots
The tremendous opportunities that lie in CEE physical real estate have fuelled the remarkable rise of both NEPI Rockcastle and its young CEO. Born in Romania, he soon moved to the US with his parents, where he spent his formative years and pursued his studies.
Although he started his career in New York, Romania – which he always visited – loomed large in his mind. “Whenever I visited, I was captivated by the scale of the opportunities,” Alex says instinctively, adding that from a young age, he was aware of the potential of the region. While working for Bearing Point in New York, he holidayed in Romania and got a job at Deloitte Financial Advisory in the country. He then became involved in NEPI almost by chance when it was set up by his former boss in 2007. Little did he know it at the time, but this would be the start of a staggering career that would see him stay in the country, nine markets and 450 people later.
In the beginning, NEPI was a small-scale operation and had a EUR 50 million commitment from South African investors – a modest sum now relative to NEPI Rockcastle’s EUR 3.8 billion market capitalisation. In the very earliest days, Alex was one of just three members of staff. “I was doing everything from preparing investor materials and analysing potential investments through to making sure the photocopier had enough ink and paper – it was a very formative experience,” he says.
Morar took over as CEO in 2015 at just 32. He is candid when saying that some outsiders might have perceived him as being too green to run the company, but he has clearly proved any would-be doubters wrong. Since his appointment, the business has gone on to manage 50 assets valued at around EUR 6 billion. Much of this was driven by a merger with Rockcastle in 2017, a move he himself spearheaded.

Bonarka City Center, Kraków, Poland

Shopping City Targu Mures, Romania

Arena Centar shopping center in Zagreb, Croatia

Promenada Mall, Bucharest, Romania

A unique approach to a unique region
There is more that separates out NEPI Rockcastle from the competition than just geography, however. Its approach is unique. The company focuses a substantial allocation of its investments in dominant properties within large catchment areas and values long-term assets above short-term ones. While he concedes that this has meant missing out on one or two bargains in recent years, it has kept the balance sheet healthy and ready to deal with any volatility. He is quick to point out that this has been useful over the ‘testing’ past fourteen months.
NEPI’s favoured approach is to look for catchment areas “upwards of one hundred to two hundred thousand people to cater to that are on a firmly upward trajectory”, which Alex suggests can maintain one medium-to-large retail property. Owning the dominant retail asset in this sort of urban area provides a high degree of security and guarantees footfall, which underlines the long-term strategic thinking that he prides himself on. The ambitious young leader sincerely derives a great deal of satisfaction from his assets driving the positive development of cities, which are often energised by a new retail property.
Morar is aware that it is prudent to diversify, however, and these investments in smaller urban centres are balanced with investments in more developed big cities like Krakow and the capital cities NRP is invested in. Here the aim of the game is different – in a competitive market such as this, he is adamant that you need to provide something better than what is already on offer.
One step back, two steps forward for physical retail
NEPI Rockcastle has performed well in an incredibly tough year for physical retail. The company estimates that in 2020 it took an approximately 30% hit on its pre-pandemic 300 million visitors, which reflects how people-orientated their business is. His team showed incredible resilience during a period of inconceivable uncertainty, working incredibly hard to maintain high-quality communications and efficiency.
Alex is bullish on the prospects for recovery as the EU’s vaccination programme ramps up and was, at the time of writing, eagerly awaiting his second jab. He maintains that “good weather combined with vaccination should hopefully result in something that keeps us from a crippling wave in fall and winter” and believes that ‘revenge spending’ will drive a strong recovery in physical retail.
Physical retailers can’t rest on their laurels and rely entirely on pent-up demand when it comes to recovery, however. The pandemic has changed the rules. Morar explains that “the final consumer has been forced to purchase many things online. People who previously had no desire to buy something online are now doing so, and this convenience might force permanent behaviour change”. Retailers must add more convenience into their offerings in order to attract customers back to physical.
Alex maintains that the pandemic has accelerated evolution rather than fostered revolution. The pandemic was a catalyst for existing trends, such as ecommerce, homeworking and video meetings. He is clear that we will not return to 2019 anytime soon but adds that way we live is constantly evolving anyway, and that many of these changes would have occurred organically irrespective of the pandemic. We would be living in a different world to the one we were living in in 2019 regardless of COVID.
Whatever the outlook, Alex calls on policymakers and regulators to support the health of the whole retail ecosystem rather than solely on retailers themselves, adding that “businesses like investors and developers allow others to thrive. If we are supported, the whole industry is supported”.
One suspects that the support of the regulators is irrelevant in Alex’s success and that of the company he helms. He leads a very strong team with a long-term view in a resilient market.