- Delivery of new space picks up after muted H1 2016, with additional 8.1 m sq m to be added by the end of 2017
- Consumer experience a growing focus across the continent
- Investors looks to CEE as lack of product in Western Europe affects transaction volumes
London, November 22, 2016 – Approximately 8.1 million sqm of new shopping centre space will be added across Europe in H2 2016 and throughout 2017 with operators seeking to add more entertainment elements designed to improve customer experience, according to research from Cushman & Wakefield.
The firm’s European Shopping Centre Development Report shows delivery is set to accelerate after a muted first half of 2016 saw just 1.3m sqm of new shopping centre space added, 7% less than the equivalent period a year previously. Turkey and Russia accounted for 40% of all completions.
If all the floor space in the pipeline is delivered on time it will take the continent’s total stock from 156.3m sqm – at the end of H1 2016 – to 164.4m sqm by the end of 2017.
Justin Taylor, Head of EMEA Retail at Cushman & Wakefield, said: “This is a particularly interesting time for shopping centre development. Landlords are working harder than ever before to understand the motivations and behaviours of their customers to ensure they stay relevant to them. This is being reflected in development activity as malls in the majority of European countries seek value-adding elements to attract consumers who are looking for experience.
“This can be found in differentiated structure and design rather than traditional shopping activity. Food and beverage operators and leisure facilities feature highly to help raise footfall, extend dwell time and increase turnover. Technology developments are also rapidly rising up the list of critically important elements in the development of any successful scheme.”
Western Europe is expected to add 1.4m sqm of shopping centre space in H2 2016 alone. This surge in delivery in the second half the year will almost triple the H1 figure to take the annual total to 1.9m sqm of space. This represents a 25% uplift on 2015 with a further 1.7m sqm of space set to be added in 2017.
Having delivered the most floor space in Western Europe in H1 2016, France dominates the pipeline with 800,000 sqm of shopping centre space set to be delivered by the end of 2017, 140,000 sqm of which will be in the Greater Paris region.
Lengthy planning processes and challenges related to the feasibility of new build shopping centres in Western Europe mean that the proportion of added space made up of extensions to existing centres will grow to 40% in 2017. The main extension project in the pipeline is in the UK: the 69,000 sqm extension of Westfield London will see it overtake the 230,000 sqm Aviapark in Moscow to become Europe’s largest shopping centre.
In Central and Eastern Europe, development activity is also expected to expand, with 2.4m sqm and 2.6m sqm of new shopping centre space anticipated in H2 2016 and 2017 respectively.
Russia leads the way with 2.3m sqm to be delivered by the end of 2017, including Moscow’s Vegas III (119,467 sqm), in spite of the economic downturn the country is experiencing.
Next year will also see the enormous, 150,000 sqm, Emaar Square centre open in Turkey, where strong demographics and growing private consumption are driving the development of new shopping centre space, although developers will be more cautious going forward given the geopolitical challenges in the wider region. Another significant new opening, Posnania (100,000 sqm) in Posnan, Poland, has opened its doors in H2 2016.
Renata Kusznierska, Partner, Head of Retail Agency, Cushman & Wakefield Poland, said: “The Polish retail market is becoming saturated, but development activity continues unabated. Approximately 380,000 sq m of modern shopping centre space is expected to be delivered next year and schemes to open include Galeria Północna in Warsaw and Wroclavia in Wrocław. We are also witnessing a large number of recommercialization projects and lease renewals for several million square metres, and a growing focus on quality of existing retail properties. In addition, extensions and redevelopments have had a significant share in the total retail supply over the last few years.”
Patrycja Dzikowska, Associate Director, Consulting and Research, Cushman & Wakefield, said: “The Polish shopping centre market will see substantial changes in both 2016 and 2017. Delivery of new, modern large-scale retail schemes, particularly in submarkets with high supply levels such as Poznań and Wrocław will affect their vacancy rates, leading to market reshuffles. Property managers and owners of existing shopping centres will need to try hard to develop quick and successful strategies in response to the expected market movements, given the current market dynamics, changing trends in Polish consumers’ behaviours and the still limited number of unique retail and entertainment operators that could bring a breath of fresh air into older generation schemes. They will certainly work hard in 2017 and 2018, at least to defend their current market positions.”
Across the whole of Europe, capital inflows into the shopping centre sector amounted to €8.5 billion in H1 2016 – a fall of almost 50% on H1 2015. There is however, divergence in the market as to the stronger performers.
While there has been a significant dip in trading volumes in Western Europe due to the shortage of prime stock, investors – with capital to deploy, and a willingness to do so – are increasing looking to Central & Eastern Europe for opportunities. The CEE region recorded nearly 20% y-o-y increase in investment volumes to €1.9 billion, with Poland accounting for 50% (€928 million) of the total invested capital. Investor appetite for Russia and Turkey at present is reflected in y-o-y declines in transaction volumes of 79% and 93% respectively.
Shopping centre investment in Western Europe reached €6.6 billion in H1 2016, a 55% y-o-y drop, led by volumes falling in the core shopping centre markets of France, the UK and Germany.
Silvia Kolibabova, Research Analyst at Cushman & Wakefield, said: “In terms of future shopping centre development potential, London, Bristol, Edinburgh, Barcelona, Munich, Ankara, Istanbul, Sofia and Bucharest are cities with strong economic dynamics and low market saturation. However, successful shopping centre development depends on multiple factors, of which many are external. The preference of high streets as shopping locations in some Western European cities and the geopolitical situation in some Central and Eastern European countries represent potential risks that will be weighed up in developers’ thinking.”