- London, Edinburgh, Bristol and Barcelona identified as locations with strong development potential
- Over double the amount of new shopping centre space was delivered in H2 2015 compared with H1
- €15.5 billion was invested in shopping centres in H2 2015, representing a 16.6% year-on-year growth
The development of European shopping centres is predicted to accelerate, with 9.1 million square metres due to be delivered over 2016 and 2017, according to a research report published today by Cushman & Wakefield.
The European Shoping Centre Development Report showed that 2015 delivered one of the lowest annual volumes of the past decade, with 4.6 million sq.m of shopping centre space opened representing a 15.8% fall on 2014. This was despite the fact that the second half of 2015 saw 3.3 million sq.m of new shopping centre space open its doors – more than double H1 figure, bringing the European total stock to 156 million sq.m by the end of the year.
Despite a slow year in 2015, shopping centre development is expected to accelerate over the next two years, with 9.1 million sq.m currently in the pipeline and due to be delivered over 2016 - 2017.
From an investment perspective, across Europe €15.5 billion was invested in shopping centres in H2 2015, representing a 16.6% year-on-year growth. The UK and Germany remain the most sought after markets, accounting for over 45% of total trading volumes.
The report shows that London retains the top position as a destination for shopping centre development. The city’s low shopping centre density – 231.2 sq m per 1,000 people – combined with its strong retail sales growth of 15.8% by 2020, makes it a key market for future shopping centre development.
Elsewhere in the UK, core cities such as Edinburgh, Manchester, Birmingham, Leeds, Glasgow and Bristol will offer encouraging environments for new businesses and are forecast to see high retail sales growth over the next five years.
Madrid and Barcelona are expected to experience high retail growth, with combined retail sales of 12% by 2020. This will be a key factor in supporting future European growth. In contrast, German and French cities are forecast to display weaker growth at 6% by 2020 in core German cities and 7.5% in core French cities.
Solid growth prospects in shopping centre provision are seen in Central and Eastern Europe (CEE), including Ankara, Istanbul, Sofia, Prague and Riga. In the second half of 2015, the trend in CEE was a focus on building new sizeable shopping centre projects, such as the 110,000 sq m Zelenopark in Russia, the 61,500 sq m Podium Ankara in Turkey and the 51,000 sq m Zielone Arkady in Poland. Extensions of existing centres represented only 12% of total new space added, and this is predicted to continue, accounting for just 9% of the total amount of new space added in 2017.
Justin Taylor, Head of EMEA Retail at Cushman & Wakefield, said: “We are seeing clear and distinct regional trends. In the traditional strong, core markets of Western Europe there is an increasing move to focus on retail extensions to exisiting assets rather than new builds. Land for new centres is often scarce in these areas or complicated to bring together, so refurbishing or extending existing centres is a good option. We expect this trend to continue as landlords need to keep their offer fresh in a competitive environment.
“Elsewhere we are seeing a very different picture. In Central Eastern Europe and the Nordics, for example, there is the appetite and space for new, sizeable centres.”
Report author Silvia Kolibabova, added: “From the investment perspective we continue to see the UK and Germany dominate. However, investors are looking to find new areas to deploy capital, and there has been significant investment growth in the Nordics, Benelux, Portugal, Poland and Turkey. In contrast, France, Italy, Spain, Romania, Slovakia and the Czech Republic registered noteworthy declines in H2 2015, compared to the same period in the previous year.”
Poland is the second largest shopping centre market in CEE (after Russia) and was the third most active in H2 2015 for development, with 362,600 sq.m of new space added across 15 new schemes and 7 extensions. One of the significant drivers of new retail space is growing demand from expanding retailers. Consumer shopping expectations are also changing as they look for an attractive retail range, interesting leisure and entertainment options alongside the rising importance of e-commerce and click-and-collect, all of which have resulted in the rising number of the redevelopment and extension projects to satisfy changing consumer patterns. The largest opening was ECE’s 51,000 sq.m Zielone Arkady in Bydgoszcz. Development activity will remain stable in the future, with a higher proportion of sites expected in urban agglomeration markets, represented by eight major cities including their satellites, with populations above 400,000. Extensions will continue to complete albeit at a smaller scale than the actual 19% proportion of extension on total new space in H2 2015.
Poland was the leading country in the region accounting for nearly 61% of the total invested capital and equating to €1.5 billion. While interest from domestic investors was limited, demand from continental and global investors was increasing significantly. As interest in prime retail properties gained momentum at the end of 2015, several deals completed in Q4. Main deals included the 75,000 sq.m Bonarka shopping centre in Krakow which was acquired by American TPG for €285 million, the 59,000 sq.m Stary Browar in Poznan was sold to Deutsche Asset & Wealth Management for €285 million and the 70,500 sq.m Riviera shopping centre in Gdynia which was bought by German Union Investment for €291 million.
Magdalena Sadal, Senior Research Consultant, Consulting & Research, Cushman & Wakefield, said: “Poland is one of the most active retail markets in Europe. While the average retail space saturation is similar to Western Europe, there are still locations with a strong potential for the development of new retail schemes. Apart from new shopping centres, modern and attractive space is also added thanks to expansions and refurbishments of existing schemes. The supply of new space matches the demand both from the tenants looking to expand their presence in our country and those just entering the Polish market.”
Renata Kusznierska, Head of Retail Agency at Cushman & Wakefield in Poland, said: “Retail centres will now need highly advanced asset management services and adjusting their product range to the customers’ needs, as well as adopting strategies for positioning the schemes in the next 5–10 years. Any actions that are taken without serious consideration may have a negative impact on the value of a shopping centre.”