Although the development of new shopping centers fell sharply across Europe in 2010, with the largest decline since 1983, Budapest saw the opening of three major malls in the last twoyears, with two further projects in the pipeline that are very near completion.
The heydays of shopping mall construction mightbe over, but it would be wrong to claim that the market in Hungary is fully saturated. Since the end of 2008, when the global economic crisis hit the country, three shopping centers have been delivered in the capital.
Újbuda’s Allee shopping center was up and running by 2009, the Corvin Shopping Center in district 9 opened its doors in the fall of 2010, followed by the Europeum this April on Blaha Lujza tér.Currently under construction are the Váci1 and KÖKI Terminál projects, both scheduled to open by the end of the year. Although plaza construction might halt in the next few years due to a possible moratorium on building new malls, operators of existing facilities are more optimistic than they were a year ago.
“Last year was difficult. Retailers, both global and local, cut back on expansion, but from the beginning of the year, we’ve seen international expansion picking up again. This trend has brought six to eight new brands to the Hungarian market since,” said Viktória Szabó, partner and head of retail at Cushman & Wakefield, the agency that among other houses operates Arena Plaza and Campona in Budapest.
Location is still a primary factor when it comes to successful operation, but it is not the only thing that matters. “These days, a flexible approach from the owner is at least as important as a good location. Operators need to be open to the needs of tenants,” Szabó said.
Cushman & Wakefield has been the retail agency of Arena Plaza, still the largest shopping mall in Budapest, since last year. The center, which opened fully leased in 2007, suffered the negative effects of the crisis, too. However, after a period of decline in occupancy in the last few years, it now operates at a vacancy rate of close to zero.
Good for the tenants
Tenants are certainly in a better position now: rents have already been depressed becauseof the crisis, but some retailers’ weaknesses can be turned into others’ strengths to further push down prices. In general, the critical level for occupancy rates is around 75–80%. If the rate drops below this, the remaining tenants –as stated in contracts in many cases – have the right to negotiate lower rents, or can even optout of their contracts and leave the mall without any consequences.
In a time of recession, in addition to the lower rents, tenants can even manage to get a partially or fully furbished store. Before the crisis, this was pretty rare – all they got was a structurally complete area and fitting out the interior wasdone at their expense their budget. Also, many landlords are offering incentives and flexible lease terms to attract quality tenants.
There are, however, exceptions. Europeum,opened in April, currently boasts a 92% occupancy rate. “The timing was just right,” said Adrienn Lovro, managing director for Hungary at ABLON, the company that developed and owns the complex. “If we had opened last November, as originally scheduled, we would have had to face the same pressure from tenants as the others.”
Others, however, risked it. Corvin started operation last fall. “We think the fact that we managed to open in the midst of the crisis with a good tenant mix is a significant achievement,” Tamás Schmidt, leasing manager of Ségécé Hungary Kft, told the Budapest Business Journal. “And I can say that the crisis fostered communication between tenants and landlords.”
The occupancy rate in Corvin was not disclosed by the company, but there are currently several empty storefronts on the third floor of the three-storey building.
The tenant mix in Duna Plaza, another mall operated by Ségécé, went through a quality change over the last three years. “We were in a lucky position there due to the excellent location of the mall,” Schmidt said. “We managed to renew our tenant mix by bringing in strong names such as Gas, Yves Rocher, Marionnaud, UPC and H&M.” Rents have been stagnating since the crisis hit Hungary, he added.
Filling empty spaces
Naturally, the crisis had an impact on tenants as well. Several retailers struggle with financial difficulties, and some were forced to fold operations in Hungary. Electronics retailer ElectroWorld filed for bankruptcy protection in March and closed down five of its 13 stores in the country. Besides big box outlets in the outskirts of Budapest, stores in various shopping malls also went out of business.
Arena hosted one of the Electro World stores that closed down recently. The 4,000 squaremeter area is currently empty, but the agency already has plans for utilizing the area, although these are not yet public. When an anchor tenant is closing down shops in a mall, the most urgent task is to replace it as soon as possible. In order to prevent situations in which a space cannot be let immediately due to the existing contract with the troubled tenant, land lords usually secure special clauses in the contract that prevent such difficulties.
“Replacing an outgoing brand is in the mutual interest of both landlords and tenants,” Ségécé’sSchmidt said. PF