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Small mall law could halt building

The government has embraced an opposition drive that would essentially outlaw construction of new shopping centers and bigger retail outlets. While the measure is meant to bolster the position of smaller domestic retailers, developers say everyone involved will pay the price.

The proposal submitted by the opposition party LMP aims to impose a size limitation on retail complexes of a maximum 800 square meters for townships with populations of more than 100,000,and 400 sqm everywhere else.

In contrast, the latest shopping mall to hit the Budapest market, Corvin, is 65,000sqm in size. The newest, so-called big box outlet, or hypermarket, to be opened by UK retailer Tesco is 26,000 sqm. If the plans are passed, these could be the last of their kind for some time.

As the proposal submitted to Parliament on March 9 argues, shopping centers have a drastic impact on the social, economic and natural environment. Apart from the direct effects of traditional retail suffering losses in turnover, increased vehicle traffic and changes to the city’s landscape, the quality of life in the areas concerned is likewise affected, the document states.

The market is already saturated, and LMP believes that the existing situation in itself is not sustainable, but this will especially be true if additional capacities are allowed to be built.

Disgruntled builders

“I don’t really think they’re serious,” said Gábor Futó, CEO of property developer Futureal. His company, along with fellow members of the real estate developers’ roundtable IFK, an umbrella organization comprising some of the largest property firms, has released a statement condemning the initiative.

The group argues that the moratorium would further worsen the situation of an already ailing construction industry and also goes against the government’s declared ambitions of job-creation.Given that the slide in retail earnings has recently stopped, while the reduction of personal income taxes is expected to be a boost for retail, IFK thinks that the ban would also hinder overall economic growth.

Futó argued that a moratorium would actually be counter productive. “Without centers, people will simply get into their cars and visit more locations to do their shopping. All it will do is add to pollution and lead to traffic jams,” he told the Budapest BusinessJournal. He also stressed that if anyone, it is Hungarian retailers that benefit from doing business in large retail outlets, where they are guaranteed footfall and don’t have to worry about additional business-generating amenities, like ample parking capacities.

Mirror image

LMP on the other hand is sticking by the initiative.In fact, the party has a view on the matter that is the direct opposite of the developer’s convictions. “Experience shows that it is actually the plazas and their huge car parks that attract bigger traffic. Especially so if they are built not in downtown locations but on the outskirts of town,” said party MP Rebeka Szabó, one of the signatories of the bill.

Asked by the BBJ on her views about the opposing arguments, she also refuted the notion that Hungarian businesses would benefit from the wide availability of big retail. “The few shop owners that get a spot in the malls are fortunate.Others that go under on the main street or settle in plazas where there are too few shoppers or the rental fee is very high are less so,” she said.

The politician also stressed that shoppingcenters are not charity organizations devoted to helping the shop-owners with the car parks and customers but a highly concentrated form of commerce that typically deflects serious expenses on to society. As examples, she pointed to increased car traffic, folded small businesses, habitats paved over and the disappearance of domestic small producers.

Pointless debate?

Of course, it might well be that the entire debate is a fuss over nothing, since market conditions would not change with or without a moratorium. Futureal’s own Tibor Tatár, CEO of the group’s development arm, said earlier that Budapest already has as many shopping centers as the city could probably sustain.

Retailers outside of Budapest are known to be struggling even more, with plenty of vacancies in hypermarkets as well, while strip malls go for warehouse prices, sometimes for €4 per sqm. This is naturally a fraction of what hyped shopping centers charge their tenants.

As such, retail generally being in a state of depression and lucrative openings few and far between, there is a good chance that the ban would prevent few if any new developments. Furthermore, experts admit that there may be some rationale to the move. But this is so only if it will compel municipal governments to give an additional boost to the retail industry by making up grades, such as overhauling buildings that are in bad condition or building underground parking facilities. Without such projects, small retail is unlikely to improve its position against the market share plazas have.

The most likely near-term outcome is that the market status quo will remain. Landlords will hardly be inclined to take the gamble of launching new developments. Instead, they will more likely be working overtime to fill the vacant capacities that they have and give their shopping facilities facelifts to make them more appealing.

The potential victims

Though not too many, there are still projects inplanning that may or may not be affected if the moratorium is enacted. The limitations proposed by LMP would not affect projects where the permitting process is already underway. However, if the government embraces the idea, as the situation would imply at this stage, last-minute modifications are to be expected, given the reigning Fidesz-KDNP bloc’s track record in lawmaking.

Property developer TriGranit, furniture distributor IKEA, Polish developer Echo Investment and Tesco all have plans and projects in various stages to commence new developments. The BBJ sought out the companies that are possibly affected but was declined comment or receive devasive answers.

Futureal’s Futó on the other hand voiced a strong opinion. “If we can’t build shopping centers, then we won’t build shopping centers,” he said. His company is eyeing the construction of a new shopping center in the southern region of the capital’s Buda side. The CEO also expressed issues of principle based on which the ban would be implemented. “There are legitimate ways to do this. Let local governments, local communities have a look at their neighborhoods and decide what they want or do not want built there,” he concluded. GR