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Retail Dynamics Drive Polarisation of European Shopping Centre Market

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  • Report shows 18% decrease in development across Europe in the first half of 2019 compared to the same period last year
  • 4 million sq m of new space is already under construction and scheduled to open in the second half of this year and into 2020
  • Turkey is set to ramp up activity and the country currently has Europe’s largest development pipeline

Challenges and changes in the retail sector are continuing to impact the dynamics of the European shopping centre market with new research from Cushman & Wakefield showing development activity across the continent is strongly polarised at both a country and city level.

The first half of 2019 saw development activity remain stable or slightly improved in most countries. However, a strong decline in openings in Turkey led to an 18% decrease in development across Europe overall, with approximately 863,000 square metres (sq m) of new shopping centre space completed.

Some 5.4 million sq m of new space is already under construction and scheduled to open in the second half of this year and into 2020.  However, over the past three years an average of 8% of scheduled openings were postponed, which means that the number of openings is likely to fall below what is currently understood to be in the current pipeline for this period.

Shopping centre development activity continues to be strongly polarised, by country and by city. For example, while the overall number of openings has decreased, major cities have boosted their share of development from 25% in 2016 to 41% in the first half of 2019.

Due to its sizeable market, Russia took the top spot for development activity in the first half of 2019 when nearly 200,000 sq m of new space was opened (+13% y/y). More than 50% of new space was delivered in Moscow alone where, despite the delivery of a large shopping centre, vacancy rates have remained unchanged. Italy, Poland, France and Germany completed the list of the top five most active development markets in the first half of this year.

Despite a development downturn this year, Turkey is set to ramp up activity and the country currently has Europe’s largest development pipeline. Approximately 1.5 million sq m of shopping centre space is currently under construction and expected to open later this year and into 2020. Elsewhere, construction activity in Russia is expected to remain stable, with 1.4 million sq m of new space in the pipeline. In a departure from the trend seen in 2019, new projects in 2020 will open mainly in the regions, with large projects scheduled to launch in Yekaterinburg, Perm, Grozny and Kirov, among other cities.

In Spain, strong fundamentals such as buoyant consumer spending, together with a solid performance from the tourist industry, have supported retail development activity. The positive economic backdrop is reflected in recent sales performances and footfall numbers - notably in prime schemes - and is supportive of the development pipeline. Approximately 355,000 sq m of new space is scheduled to open in the second half of this year and into 2020, with 42% of this space earmarked for the Madrid region.

Construction activity in France remains solid, albeit constrained by tight planning and strong competition between retail locations. Finland meanwhile has the fifth largest development pipeline, with 244,000 sq m expected to open in this year and next with 70% located be in the key cities of Helsinki, Espoo and Turku.

Report author Silvia Jodlowski, a senior research analyst from Cushman & Wakefield, said: “The evolving and challenging nature of the retail market means we are still seeing some parts of Europe perform better in terms of investment in and development of shopping centres. The polarisation, even within individual countries, is continuing and we are also seeing certain city types being targeted. 

Cities with large populations are seen as an opportunity for destination schemes, while high-footfall locations are sought after for small convenience centres. In some countries with adequate provision in the major cities, investor interest has shifted to smaller cities and towns. As retailers continue to experiment with new formats, we are also seeing buoyant activity in the factory outlet centre market, notably in Central and Eastern Europe in Russia, while the retail park sector is also active in some Western European countries including France.”

Małgorzata Dziubińska, Associate Director, Consulting and Research, Cushman & Wakefield Poland, adds: “The increasing market saturation, changing customer needs and expectations, and the rapid growth of e-commerce are expected to be key drivers shaping the retail real estate landscape in the near future. An optimum tenant-mix with a diverse offer and unique functions is required to enable a shopping centre to stand out against competition and so are architectural and fit-out upgrades to guarantee an exciting and enjoyable experience. Other critical factors include credibility, an appropriate strategy of communication and deepening customer relationships, and high-quality customer service, which is the last but the most important link in customer communication.”

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