Hungary 2015 Top Stories: People would vote against no-shop Sundays

Still unpopular

If we are looking for the single event, decision or measure that has directly affected the largest number of people in Hungary in 2015, most would probably immediately think of the “Sunday retail lockdown" introduced on March 15. It would be hard to forget it now, when no major shopping could take place in the 3.5 days during and after Christmas, as December 27 was a Sunday and most major retail units were closed accordingly.

The unceasingly unpopular measure was originally put forward by Christian Democrat (KDNP) MPs and passed in Parliament by the government majority without supporting it with even a single impact study, and even after eight months, assessment of its macroeconomic effects is far from unequivocal.When pollster Ipsos published the results of its latest survey early in December, it turned out that more than six months after the bill was enacted, 68% of Hungary’s adult population either “rather disagrees" or “completely disagrees" with no-shop Sundays. This figure is precisely the same as it was in March, although there has been a tangible change that suggests opinions are now more moderate, as the number of those outright rejecting the measure has decreased within the total. To illustrate how much the rule affects people, 61% of active retailers interviewed said the amendment altered their weekend activities to some degree.

In light of opinion polls from both this spring and the end of the year, it is not at all in the governing parties’ interest to hold a referendum on no-shop Sundays, and the tribulations of recent months appear to indicate that the stars are aligned in their favor. The National Election Committee has kept throwing out badly worded or incomplete referendum questions for several months, until it finally approved a rather peculiar question, which means voters will not be able to express their true opinion on the issue in the near future.

But what did it cause?

Even before the no-work Sunday was introduced, we had emphasized that any assessment of the macroeconomic effects of the measure could only be possible in the long term (and also that the process of whitening the economy does not help in getting a clear picture).

However, a few indicative pieces of information could be garnered from statistical data on retail sales. According to these figures, the growth rate of retail trade slowed both in the first few months following the introduction of the measure and in October, especially in food retail, with the most spectacular drop seen in the non-specialized food retail segment.

The overall growth of retail trade is also bad news for many retailers, inasmuch as they have thus lost the main argument and negotiating chip they may have had in talks with the government - that is, if they had one in the first place.

Based on the statistical figures for seven full months, we can say that the effect of no-shop Sundays on employment was twofold: total headcount in the retail sector fell by 2,000 to 2,200 people, while the number of full-time employees rose. The likely explanation is that retailers bumped some of their part-time staff to full time, while the majority was laid off. Meanwhile, overtime has increased significantly, which indicates that although there is structural demand for workers in retail, this does not translate into hiring more employees.

We can also draw the tentative conclusion that in places where no-shop Sundays did actually result in excess workforce, the government measure led to swift layoffs.

And for market players?

Although players in the real estate market, landlords and tenants alike, initially feared no-work Sundays just as much as customers had, the actual impact on them was much weaker. The fact that they kept closed on Sundays significantly reduced the costs of many larger retailers and mall operators, and they actually benefited from the change as the increased turnover was coupled with lower costs. Smaller retail units cannot make the same savings due to their size, so these are the stores affected most negatively by the regulation and also the ones that have been forced to save on labor costs, i.e. lay off employees. This is also bad news for the government, as one of the main objectives of the measure had been to improve the situation of small businesses.

It s now obvious that the plan backfired, and while major foreign-owned tenants registered growth as high as 30% in some cases, many of the smaller, predominantly Hungarian tenants came off worse and had to close shop.

Nevertheless, some customers and sales have surely been diverted to smaller stores, which are allowed to open on Sundays, and this might just be enough as far as the government is concerned at the level of communications.

The Market Sentiment Survey, a joint survey by Portfolio, RICS and Eltinga which publishes typical rental fees and estimated yield levels in the Hungarian property market, indicated a lower-than-expected change in rental fees in the retail segment in the fist half of 2015. The main reason for this was that the segment is dominated by long-term leases, which were not renegotiated immediately after the government measure had been introduced.

At the same time, it became clear by the end of the first half that a strong landlord’s market has developed in the most popular shopping malls. The trend gained momentum during the second half, and in some places, potential tenants are literally lining up for available spaces. Although rental fees in shopping malls are largely dependent on the given property and there are often significant price differences even within the same building, we have seen a substantial increase in rental fees in the upper segment of the market in 2015.

In the five most popular malls in Budapest, typical rental fees rose from EUR 38 to EUR 45 per square meter in six months, according to RICS. This is not just the highest value since the survey was first launched in 2011 but also the biggest increase in the entire Budapest property market since then. It is also worth mentioning that the highest rental fees in the market have also increased: while a square meter of retail space cost EUR 55 a month in the most expensive malls in 2014, the second half of 2015 saw rental fees as high as EUR 70 per sqm in the market. The lowest fees, which have been frozen at around EUR 20-25 for several years, have also increased, and a square meter of retail space cost at least EUR 30 in Budapest’s major malls by the end of 2015. It is important to note, however, that this upswing is more typical in malls in Budapest, while outside the capital, the market of malls and retail parks is far from soaring.

Although market players have launched campaigns on several fronts in order to somehow recoup the lost Sunday sales, they had practically no room for lowering rental fees anywhere.

One of the main reasons behind the rising rental fees, beside the expansion of retail units, is the total lack of new developments. No new shopping mall has been completed in Hungary for the past several years, and the expansion of foreign-owned food retail chains was curbed almost completely by the so-called “mall stop" legislation. (These chains can now only “inherit" retail space and typically open new units in locations where domestic retail chains close a store.)

As for what we can expect in the future, the fact that no new mall developments are expected in the foreseeable future says it all. Even though several projects are exempt from the mall stop law, most developers feel it is not yet time to begin construction. In the case of several projects, attracting major tenants would not be a problem, but the smaller stores would not necessarily follow.

Building a shopping mall is more expensive than other property developments, so securing suitable funding is also increasingly becoming a problem. Although it is clear and obvious that banks are increasingly open to financing real estate projects, there is little chance that construction of a shopping mall will begin in Hungary in the near future. Market outlook could also be negatively affected by the recently announced reduction of VAT on residential property, as mot property developers will almost certainly place emphasis on home constructions in 2016.

In conclusion

The undisputed losers of no-work Sundays are Hungarian consumers, who now have less time and unchanged retail space at their disposal to satisfy their increased shopping needs. Moreover, no improvement is to be expected in the foreseeable future, as no new mall construction will begin in the near future, while the government is not planning to revoke the measure, even though it completely failed to meet its original goal of improving the position of domestic retailers.

• Tags:
• retail,
• economy,
• companies