With the project pipeline of leading developers being disrupted we forecast huge rent increases for future flagship projects, as retailers seek to expand and battle for the highest footfall in the most appealing locations.
Scope
*Detailed chapters on five core European markets, with analysis of leading players, recent developments, major centres, project pipelines and outlook.
*Profiles of Corio, Klepierre, Sonae Sierra, Unibail Rodamco including in depth analysis of their strengths, weaknesses and future plans.
*Discussion of environmentally friendly strategies: energy generation, conservation and efficiency with case examples from leading EU centres.
*A thorough assessment of the strategies for growth including new formats, new tenant mixes, new locations and other market shaping initiatives.
Highlights
We are seeing the first signs of stabilization after two years of turmoil. For now the race to mark down assets has stopped or at least significantly slowed. Credit markets are slowly returning. In many markets retail sales have seen a decrease in the speed of decline. The overall situation is clearly easing CEE apart.
However the long term outlook remains extremely sluggish and the pace of recovery slow and drawn out. And one has to assess the situation on a case by case basis shopping centre by shopping centre. In the meantime the shopping centre market has become a tenants’ market and shopping centre developers will have to deal with limited rental growth.
Due to lower inflation and subdued retail sales, retailers can dictate conditions. The question of rent inflation has made a violent comeback with many retailers renegotiating leases. The threat of bankruptcy proceedings has strengthened retailers’ hands. As a direct result of the economic crisis we have witnessed a pipeline extinction.
Reasons to Purchase
*Assess market potential and threats by accessing sector size data and seeing how consumers and retailers have reacted to recent economic turbulence.
*Comprehensive profiles provide essential information on business models and performance, measures both crucial for benchmarking businesses.
*Identify the key trends and issues for shopping centres in Europe and design strategies to exploit opportunities and minimise risk.
Table of Contents :
Executive Summary 2
Key findings 2
All about recession 2
Retail pain spreads to property 2
Signs of stabilization – but outlook remains sluggish 2
Shopping centres become a tenants’ market 2
Pipeline dries up 2
Internet major threat 2
Developers can protect asset value indirectly by lowering rents 2
Factory outlet centres represent a major opportunity in certain markets 2
Luxury retailers create point of difference 2
Centres need to offer something new and exciting 2
A balanced sector mix will make shoppers stay longer 2
New concepts drive growth 2
Internet offers better communication via new media 2
Centre gift cards, night shopping and events should drive sales 2
Tenant rotation can give a new lease of life 2
Greening will be a major issue 2
Capitalise on renewable energy sources to reduce costs and carbon footprint 2
Sustainability should also affect the tenant mix and more organic retailers should be found in these centres 2
Energy efficiency and greening of retailing needs to be anchored in rental contracts 2
Sustainability will raise future asset values 2
Prospect of future inflation will make shopping centres an attractive investment once more 2
A disrupted replacement cycle spells huge rent increases for flagship projects in the future 2
Main conclusions 3
Changing fundamentals as downturn pounds shopping centre sector 3
All about recession 3
Retail pain spreads to property 3
Signs of stabilization – but outlook remains sluggish 3
Shopping centres become a tenants’ market 3
Pipeline dries up 3
Internet major threat 3
Developers can protect asset value indirectly by lowering rents 4
Market shaping initiatives become the key growth opportunity 4
Factory outlet centres represent a major opportunity in certain markets 4
Luxury retailers create point of difference 4
Centres need to offer something new and exciting 4
A balanced sector mix will make shoppers stay longer 4
New concepts drive growth 4
Internet offers better communication via new media 5
Centre gift cards, night shopping and events should drive sales 5
Tenant rotation can give a new lease of life 5
Environmental sustainability issues will affect all areas of shopping centre development and management 5
Greening will be a major issue 5
Capitalise on renewable energy sources to lower costs and carbon footprint of centres 5
Sustainability should also affect the tenant mix and more organic retailers should be found in these centres 5
Energy efficiency and greening of retailing needs to be anchored in rental contracts 6
Sustainability will raise future asset values 6
Disrupted pipeline to drive up rents at future flagship projects 6
Prospect of future inflation will make shopping centres an attractive investment once more 6
A disrupted replacement cycle spells huge rent increases for flagship projects in the future 6
Table of Contents 7
Table of figures 8
Table of tables 9
Strategic issues I – The economics 10
The economic back ground – emerging from crisis into a jobless recovery 10
Economic picture – GDP crawls back up 12
Euro interest rate remains at historical low 13
No sign of inflation yet 15
Unemployment time bomb 17
Strategic issues II – the shopping centre outlook 19
Problems for shopping centre developers 19
In financial markets the availability of borrowings is still very limited to concerns about debt levels and quality of the debt. 20
The main problem though perhaps rests with the consumer and the shift towards discount and value. 20
That said the situation should be viewed on a case by case basis and one should differentiate. 20
Property prices – is now the time to re-enter the market? 20
Verdict predicts that openings of shopping centres will stagnate for the next year at least – the sector now suffers from overcapacity, there is too much shopping centre space out there. 20
Gloomy outlook for rents 21
Creative thinking needed to combat voids 22
Property revaluations caught in a downward spiral, as falling rents depress the value of assets 23
Distressed sales could depress asset valuations further 23
The inflation conundrum – will property become a safe haven once more? 24
A longer term opportunity, if inflation returns 24
A disrupted replacement cycle spells huge rent increases for flagship projects in the future 24
A tenant market due to retail sales under pressure and little expansion 25
Loss of tenants 25
A question of rent reviews 25
Lowering rents to minimise vacancy rates can protect asset value for developers 25
Strategic issues III – strategies for growth 26
New formats 26
Furniture boulevards 26
Outlet centres outperform traditional ones 28
Developers should get involved – copy the winning format 31
New tenant mixes 32
Old anchors, new neighbours? The need to create a point of difference 32
The need for a balanced tenant mix – offer something new and exciting 32
The need for a balanced sector mix – make customers stay longer 32
New location targets 33
Internet becomes the major threat – and shopping centres need to offer something special 35
Need to generate traffic in centres 35
New media enables better communication 35
More events, gift cards, night shopping 36
Get the basics right 36
Use the internet, rather than develop defensive strategies only 36
Become radical and brutal in retailer selection 36
Strategic issues IV – greening operations 37
Green Issues become ever more important – sustainability 37
Environmental policies such as energy efficiency and sustainability will impact on centre and store design 37
Water and waste management and green transport 37
Energy performance coefficient 38
There is an inherent need to make buildings more energy efficient 38
Sustainability should also affect the tenant mix and more organic retailers should be found in these stores 38
Energy efficiency and greening of retailing needs to be anchored in rental contracts 38
Sustainability will positively influence the value the market is prepared to price an asset by in future 39
Developers implement the green factor 39
Strategic issues V – Eastern Europe 41
CEE caught in the doldrums 41
New openings slow 41
Developments still in the pipeline 42
End of retail boom has created difficulties for shopping centres 44
The deep economic crisis has crippled the once booming shopping centre trade in CEE 44
Difficulty in achieving finance to fund new developments 44
Impact on shopping centre tenancies – it’s a tenants market 45
France 46
Legislation slows pace of new openings 46
Crisis hit retail sector hurts sales in shopping centres 47
Property market tough but signs of improvement 47
Shopping centres house new formats and entrants 47
Carré Sénart – centre located in new Parisian suburb 48
Significant regional centre expansion encapsulated by Odysseum opening 50
Rejuvenation of existing centres 51
Main players 52
Unibail-Rodamco 52
Eurocommerical Properties 52
Immochan 52
Pipeline 52
Outlook – leisure anchors replace hypermarkets 53
Reliance on struggling hypermarket format reduces 53
Lingering threat of unemployment continues to hinder retail 53
Disparities in regional and type of shopping centre performances 53
Attention to aesthetics and environment important for new developments 53
Germany 54
Steady growth 54
Total space shows there is more potential for high calibre centres in Germany 54
Trend to inner city locations as well as smaller projects 54
Demise of the department store 54
Centro Oberhausen, Germany’s largest covered mall 55
My Zeil, Frankfurt – the most important opening in 2009 57
Main players 58
ECE 58
MFI 58
Deutsche EuroShop 58
Pipeline 59
Outlook – pause in developments 60
Shopping centre development to pause 60
The demise of Arcandor presents a major opportunity to the likes of ECE 60
Italy 61
Small centres prevail despite large scale developments 61
Shopping centres struggle in challenging retail market 61
Regional expansion 61
Bureaucratic legislation and planning system 62
High prevalence of factory outlet centres 62
Campania, home to one of the south’s largest malls 63
Eco-sustainable extension 64
Main players 68
Eurocommercial Properties 68
IGD SIIQ 68
Others 68
Pipeline 68
Outlook – openings continue 69
Further openings on the cards 69
Large pipeline but development subdued 69
Regeneration of old town centres 69
Regional differences in income affect developments 69
Carrefour withdrawal from the south – other hypers could follow suit 69
Move to leisure and entertainment malls 69
Spain 70
Rapid space growth in 2008 ahead of a lull 70
Factory outlet resilience 71
Property crash takes its toll on the shopping centre sector 72
Islazul, Madrid’s largest mall 72
Xanadú capitalises on draw of leisure activities 73
Main players 75
Pipeline 75
Suspended projects 75
Outlook – grim 76
Faces prolonged downturn 76
New shopping centre developments delayed 76
Big squeeze on future developments 76
Increased rental pressure on tenants in most important centres 76
UK 77
Openings to come to a halt 77
Conditions slowly stabilise 77
Gloomy outlook for secondary and tertiary locations 77
Reversal of fortunes – shoe on retailer’s foot 77
Westfield – the occasion 78
Most important opening in London in 2008 79
St David’s II opens half-empty 80
Main players 81
Lend Lease 81
British Land 81
Liberty International 82
Westfield 82
Hammerson 82
Pipeline 83
2010 – the lowest amount of new shopping centre space in almost 15 years 83
Outlook – pipeline slows to a trickle 84
UK shopping centre pipeline halves since March 2007, with several years of low town centre completions 2007/8/9 almost 20% lower than 1989/90/91 84
However, London will be secure 84
Retail is in for a tough time 84
Something needs to happen to upwards only rent reviews 84
Internet to further encroach on the sector 84
Company comparisons 85
Qualification 85
Corio 86
Dedicated shopping centre specialist following sale of office property portfolio 86
Recent key events 87
In August 2009 Corio reported sustained net rental income growth in a difficult market in H1 87
In June 2009 Corio took control of Príncipe Pío shopping centre in Madrid … 87
Also in June the company raised €258.0m from a share placing with institutional investors 87
In April 2009 Corio acquired the Tekira shopping centre in Tekirdağ, Turkey 87
Financials 88
Shopping centre portfolio 90
Outlook – focuses on extensions 91
Risks appear manageable 91
Buying or developing new centres is more risky 91
Decentralized management looks right 91
Specialised retail focus 91
Staying at home 91
In terms of financing the insourcing of redevelopment and the increasing of the dealflow by an active acquisition and selling policy together with a policy of a maximum of 20% investment in emerging markets should get Corio through the worst. That said we do not know what the quality of the outstanding debt obligations is that Corio has to serve. It seems also prudent not to get too overexposed to emerging market volatility, one lesson perhaps from the crisis of 2008/09. 91
Klépierre 92
Strong European spread 92
Recent key events 93
New mall in France taps into leisure activities 93
Rents grow in first half 93
Disposals to shore up cash 93
Scandinavian acquisition boosts portfolio 93
Financials 94
Shopping centre portfolio 96
Outlook – consolidates portfolio as hypermarket anchors struggle 99
Revenues sustained despite Europe’s recession 99
Arrested development and restructuring existing portfolio 99
Key partner for major expanding European retailers 99
More geographically diverse portfolio 99
Heavily tied to struggling hypermarket format 99
Sonae Sierra 100
Loop5 opens 95.0% let 100
Recent key events 101
Loop 5 opens in Germany 101
Takes over management of two European centres 101
Autumn 2008 marks new centre openings 101
Financials 102
Rents in Europe up 102
Shopping centre portfolio 104
Outlook – modernises portfolio while developments are delayed 107
Developments on hold for time being 107
Acquisitions window will open 107
Improves, modernises and develops themes – including green 107
Unibail-Rodamco 108
Europe’s biggest listed player 108
Recent key events 110
In April 2009 Unibail-Rodamco announced a share placement with investors for €500m. 110
Work goes on 110
In 2008 Unibail-Rodamco completed its largest shopping centre transaction … 110
Strengthens presence in France 110
Successful openings in 2008 110
Financials 111
Shopping centre portfolio 112
Recent trading 112
Outlook – tough 113
Insulated against downturn 113
Acquisition potential 113
While retail sales – much dependent on consumer confidence – will remain weak, there is better news provided by inflation which we expect to remain low. This will make servicing outstanding debts easier for the company and with a relatively low LTV ratio – especially compared with UK players – this will leave room for Unibail-Rodamco to hunt for attractive takeover targets in the EU’s shopping centre market. 113
Development continues 113
Extensions lower risk 113
Extensions and redevelopments of shopping centre assets account for 31.0% of the retail development pipeline. Key projects being studied include a 40,000 sq m extension of Cerný Most; a 10,000 sq m extension of the Rennes-Alma shopping centre in Rennes, France, which the group acquired in 2007; a major redevelopment and extension of Parly 2 and a value creation project for Shopping City Süd in Vienna. Redevelopments and extensions are a lot safer than completely new centres as management knows the key business fundamentals of their locations. 113
APPENDIX 114
Glossary 114
Abbreviations 114
Financial statistics 115
Source – Verdict Research 115
Verdict Research consulting 115
Disclaimer 115
List of Tables
Table 1: Monthly changes in retail sales y-o-y February-July 2009 11
Table 2: Latest GDP data August 2009 12
Table 3: Monthly Harmonised Index of Consumer Prices – rates y-o-y Jan-Jul 2009 15
Table 4: Monthly unemployment rates y-o-y Jan 2009-Jun 2009 17
Table 5: Shopping centres in France 2004-2009e 46
Table 6: Significant shopping centre openings and redevelopments in 2008 50
Table 7: Significant shopping centre openings in 2009 50
Table 8: Shopping centres in Germany 2004-2009e 54
Table 9: Shopping centre pipeline in Germany 2010-2011 59
Table 10: Shopping centres in Italy 2004-2009e 61
Table 11: Shopping centres, factory outlets, OOT leisure and retail parks in Spain 2004-2009e 70
Table 12: Shopping centres in Spain 2007-2008 71
Table 13: UK shopping centre space 2005-2009e 77
Table 14: UK centre development pipeline 2009-2012 83
Table 15: Company comparisons as at December 2008 85
Table 16: Corio company overview 2009 86
Table 17: Corio business matrix 2004 -2008 88
Table 18: Corio tenant mix 2008 89
Table 19: Corio most valuable centres H1 2009 90
Table 20: Klépierre company overview 2009 92
Table 21: Klépierre real estate appraised asset values 2007-2008 94
Table 22: Klépierre group and total rental income breakdowns 2005-2008 95
Table 23: Klépierre geographical distribution of rent from total centres under management 2007 and 2008 95
Table 24: Klépierre geographical distribution of rent from group owned shopping centres 2007 and 2008 96
Table 25: Klépierre shopping centre portfolio 2007 and 2008 97
Table 26: Sonae Sierra company overview 2009 100
Table 27: Sonae Sierra total rental income 2007 and 2008 102
Table 28: Sonae Sierra key performance indicators 2003-2008 103
Table 29: Sonae Sierra total GLA 2001-2008 104
Table 30: Sonae Sierra shopping centre portfolio 2007 and 2008 105
Table 31: Unibail-Rodamco company overview 2009 108
Table 32: Unibail-Rodamco portfolio asset valuation 2007 and 2008 111
Table 33: Unibail-Rodamco net rental income from EU shopping centres 2007 and 2008 111
Table 34: Unibail-Rodamco shopping centre portfolio asset valuation and yields 2008 112
List of Figures
Figure 1: European Central Bank interest rates 2006-2009 14
Figure 2: Difficulties facing shopping centre developers 2010 19
Figure 3: Case study: Sonae Sierra’s development pipeline in the EU at August 2009 21
Figure 4: Case study: Sonae Sierra’s variable rental income slips in Spain and Portugal 2008 22
Figure 5: Strategies for growth 2010 26
Figure 6: Domus Rosny, Paris 2009 27
Figure 7: Factory Outlet centre penetration in selected EU countries at January 2009 28
Figure 8: FACTORY Getafe, Spain 2009 29
Figure 9: McArthurGlen Barberino designer outlet, Italy 2009 30
Figure 10: Key high footfall locations for new shopping centre developments 2007-2011 33
Figure 11: I Petali di Reggio, Italy 2009 34
Figure 12: Combating the online threat and strategies for creating destination status 2010 35
Figure 13: Shopping Sqaure Meydan, Istanbul, Turkey 2009 37
Figure 14: Building the eco-sustainable mall 40
Figure 15: Arkády Pankrác, Czech Republic 2008 41
Figure 16: Shopping centres in planning/building phases in CEE 2009/10 43
Figure 17: Palladium, Prague, Czech Republic 2008 45
Figure 18: Carré Sénart Ile de France 2009 48
Figure 19: Inside Carré Sénart, Ile de France 2009 49
Figure 20: Odysseum, Montpellier 2009 51
Figure 21: CentrO, Oberhausen 2009 55
Figure 22: MyZeil, Frankfurt 2009 57
Figure 23: McArthurGlen Veneto Designer Outlet, Italy 2009 62
Figure 24: Centro Commerciale Campania, Italy 2008 63
Figure 25: Centro Commerciale Campania Piazza, Italy 2008 64
Figure 26: Centro Carosello eco-sustainable extension, Carugate 2009 65
Figure 27: Carosello grass meadow roof and sunlight capturing funnels 2009 66
Figure 28: Centro Carosello extension (inside), Carugate 2009 67
Figure 29: Islazul, Madrid 2009 72
Figure 30: Madrid Xanadu, Madrid 2009 73
Figure 31: Madrid Xanadu aerial view, Madrid 2009 74
Figure 32: Westfield London 2008 78
Figure 33: St David’s 2009 80
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About the Author
Minal H
SEO
vinod.minal@gmail.com
http://www.aarkstore.com
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