February 17, 2012
The downturn has slowed the development of new shopping centres in many mature markets, but the pipeline remains buoyant in several of EMEA’s emerging markets.
Cushman & Wakefield predicts that an upturn in shopping centre development in Europe is on the horizon, fuelled by improving retailer demand and concerns about potential shortages of prime retail space.
And with Central and Eastern Europe having accounted for 58 % of new space in the first half of 2011, Russia, Turkey and Poland are topping the league with strong development levels.
This was reinforced by CBRE’s Shopping Centre Stock in Europe report, which found that of the 146 shopping centres under construction in Europe in July 2011, Turkey accounted for 26 schemes, Russia for 19, and Poland for 21.
Nearly one fifth of the first half of 2011’s European development total, just over 400,000 sq m, was completed in Russia. And Moscow accounted for 36% of that new space with the opening of AFIMALL City and two other shopping centres. Jones Lang LaSalle estimates the Russian shopping centre pipeline for the remainder of 2011-2013 to be about 3.5m sq m, of which 25% will be constructed in Moscow and the surrounding region.
CBRE puts Russia’s highly active development market down to a healthy consumer environment and strong occupier demand. Russia has moved up from sixth position to become the third most targeted place for retailers in CBRE’s “How active are retailers in EMEA?” survey.
“Russia will soon join the World Trade Organisation which will improve consistency, transparency and clarity,” says Peter Gold, CBRE ‘s head of EMEA cross border retail. “There are still a lot of opportunities in Moscow and St Petersburg and plenty of other cities with populations of over a million.
“It’s a top target for retailers so there’s a need for development – it’s big, it’s emerging and it’s getting easier to do business.”
High rents in sought-after locations is one of the factors persuading retailers and developers to target the larger regional cities, many of which are still under supplied in terms of shopping centre space.
Jones Lang LaSalle predicts that the share of stock in smaller regional cities will increase from 24% to 27% by the end of 2013, with developer interest moving outside Moscow to the regional cities including Saratov, Ulyanovsk, Barnaul, Tyumen, Ryazan, Astrakhan, Sochi, Orel, Surgut and Nyagan.
In Turkey more than 800,000 sq m is under construction, most of which is located in Istanbul. And much like Russia and Poland, it’s faring well economically, compared to its European counterparts, suffering from the fallout of the Eurozone crisis.
“The current economic position of Turkey is relatively stronger than other European countries,” says Nesil Akman Aybar, director of business development at Savills, Turkey. “Purchasing power has been increasing and demography has been growing too.
“The young population who like Western-style shopping and entertainment are one of the main drivers and relatively high retail rent figures make shopping centre developments attractive when compared to other commercial properties.”
But he warns that while both primary and secondary cities have potential for retail development, there is a risk of oversupply in some regions.
“In Istanbul, the total number of shopping centres is 101 and this number will reach 160 as of 2013,” he says. “In Ankara, there are 35 shopping centres, expected to reach 37 in 2013.”
By measuring shopping centre density by GLA per 1000 inhabitants, Aybar identifies Izmir, where there is 71 sq m – the Turkish average is 105 – as having high potential for retail developments. In Istanbul the density is well above the national average with 234 sq m per 1000 inhabitants, as is Ankara with 221 sq m.
“Most of the developments have been regional scale shopping centres but we believe small scale neighbourhood shopping centres with good design and brand mix will be successful and gain importance in the near future,” he says.
Poland is another highly active market.
According to Colliers International data, by mid-2011 construction was under way on more than one million sq m of retail space, 700,000 sq m of which is scheduled to be completed by the end of the year.
According to the Investing in Poland 2012 Trendbook, in association with PwC and The Polish Information and Foreign Investment Agency, secondary cities, which are often plagued by a serious shortage of modern retail space, are set to see a surge in mall construction and retail real estate investment in the coming months.
In the second quarter of 2011, no major retail project was completed in any of the eight largest cities in Poland. On the other hand, deliveries in the smaller, regional cities in 2011 included Opole’s Turawa Park, Random’s Galeria Sloneczna, Leszno’s Galeria Leszno, Slupsk’s Galaria pod Wiatrakami and Zamosc’s Galeria Twierdza.
“Poland has a strong economy and a strong appetite for retail brands but there’s not as much in the pipeline as there could or should be, considering it’s stability and the number of prime locations,” says Gold.
According to Peter Evans, leasing director at Helical Poland, shopping centre development was kick-started by French hypermarkets like Carrefour and later Tesco. It was only 12 years ago that the first modern malls began to open.
“Galeria Mokotow was one of the first examples,” he says. “Followed by others in Wroclaw and Lodz, Poland’s second biggest city, where two to three shopping centres have been built in the last few years.
“Warsaw is still the most sought after city for retailers followed by the top five biggest cities. Development began in the West and is now slowly moving east along the main highways. The North is also an area of interest, with bigger cities. And the South is densely populated.”
With promising economic outlooks, large, often young populations crying out for international retailers and strong occupier demand Russia, Turkey and Poland are attractive markets for the development of new retail destinations, and are leading the way with active pipelines.
But as with the mature markets, landlords who have previously stuck to the main cities are starting to look elsewhere, spurred on by the threat of oversupply in some regions and the congestion of large cities where the infrastructure is struggling to cope. A move towards regional schemes will only unlock a further potential.
For many conferences on specific European markets, check out the “Territories” track at MIPIM 2012.
Image: Михал Орела