New research from global real estate adviser Cushman & Wakefield predicts that 2010 will see the lowest level of European shopping center development activity for five years, with only 7 million square meters (sqm) of new space due to open.
The full impact of the global recession is likely to be most felt in 2011, however, when only 5 million sqm of space is predicted to open across Europe, the lowest figure since 2003.
In its new European Shopping Centre Development report, Cushman & Wakefield says that 2009 will see around 8.7 million sqm of new shopping centre space open – a decline of 5% on 2008. In the first six months, 3.1 million sqm of space in 115 new shopping centers opened in Europe, 18% less than the same period in 2008. Completion levels are not expected to pick up significantly for 2-3 years.
The largest amount of new shopping centre space opened in Russia, where approximately 580,000 sqm was added in the first six months of 2009, of which around 45% was built in Moscow. In Western Europe Italy recorded the highest amount of new space, with 18 new centers adding just over 370,000 sqm to the market. Germany and the Netherlands also recorded relatively strong activity in the first half of 2009. Bulgaria recorded the largest percentage increase in shopping centre provision at 33%.
Turkey and Russia still top the ‘league table’ of shopping centers in the pipeline with around 2 million sqm and 1.8 million sqm respectively scheduled to open by the end of 2010. France has the largest pipeline of new space in Western Europe, with a focus on medium sized schemes in secondary cities. In terms of percentage growth, Bulgaria, Latvia and Romania lead. Latvia now has, on a per capita basis, the same provision of space as mature markets such as the UK, France and Spain. If all schemes planned for the next 18 months in Bulgaria complete on time, the country will see an unprecedented 370% increase in shopping centre floorspace in the period. The largest centre to open in 2009 was the Dolce Vita Tejo shopping center in Amadora, Portugal. At 122,000 sqm, it is the country’s largest shopping centre.
In Hungary there were no shopping centre completions in H1 2009, but we expect to see 46,500 sqm of new supply in the second half of the year and another 34,000 sqm by the end of 2010. These completions will increase the total shopping centre floorspace in Hungary by 7.8%.
Ilona Hardy, senior research analyst in Cushman & Wakefield’s Budapest office, said “by 2011 new shopping centre completion levels are likely to have dropped by around 45% from their peak in 2007. Even though some schemes have been put on hold because of the difficult economic environment, new development is far from being at a complete standstill. In both mature and emerging markets there remains potential for new shopping centers and there is evidence of medium to large scale shopping centers still being able to obtain finance, albeit developers are being required to provide significant chunks of their own equity. Such schemes are normally in prime locations where there is a proven need for retail development.”
Viktória Szabó, partner, head of retail at Cushman & Wakefield’s Budapest office added: “Retailers are still very cautious in where they spend their money. There are clearly some major players, however, who are taking advantage of the current downturn and continue to invest in significant expansion locally or internationally. It is largely a tenant’s market at the moment and retailers are often able to take advantage of their brand strength and their strategic importance as anchor stores in retail developments to negotiate attractive terms. Simultaneously, some smaller or less cost effective retailers are running into difficulties which opens opportunities for newer brands to extend their presence. We do not, however, expect a major shake-out of the market.”
Last year over 9 million sqm of new shopping centre space opened across 310 schemes. Russia saw a 23% increase in total shopping centre provision, with 1.65 million sqm of new space, followed by Turkey, the UK, Spain and Romania. In percentage terms, however, Bulgaria and Romania experienced by far the largest increases in shopping centre provision, at 76% and 63% respectively. The UK was the most active western European market with around 840,000 sqm of new space coming onto the market in 2008, primarily due to the opening of three large regional shopping centers.
Investment in shopping centers in the first six months of 2009 fell 54% on the same period in 2008 with €8.3bn invested across Europe. Investment activity in Eastern Europe has come to a virtual standstill although there is some activity in more established markets such as the UK, Germany, France and Spain. There is also evidence that, after two years of increases, prime shopping centre investment yields are stabilizing across Europe.
Mike Rodda, head of cross border retail investment, Cushman & Wakefield said “the main German open ended funds have now re-opened with a focus on really prime retail investments in core European markets. The majority of the deals seen in Q1 and Q2 have been in core markets where debt has been transferred with the deal or with vendor financing. The core markets are therefore seeing most investment activity while the eastern markets have been almost in-active since 2008. We are, however, beginning to see pockets of debt availability, usually syndicated for larger deals, so we are expecting increased volumes during Q4.” (press release)