LONDON, 25 April, 2017: Extensions to established shopping centres will be a significant driver of new floorspace across Europe in the next two years, according to Cushman & Wakefield’s latest European Shopping Centre Development Report.
Landlords are increasingly focused on pursuing the ‘right’ Looking ahead, the amount of new space set to be delivered in the next two years is estimated to be 6.8m sqm. Since the Global Financial Crisis Western Europe has lagged behind Central and Eastern Europe (CEE) in terms of new space added and while that will remain true in 2017, Cushman & Wakefield expects the former to reemerge as the best-performing region in 2018.
Justin Taylor, Cushman & Wakefield’s Head of EMEA Retail, said: “Shopping centre owners are responding to shoppers’ wishes to augment their physical shopping experience with a social or leisure experience. Development activity is increasingly focusing on new formats with a strong food and beverage presence as well as leisure and entertainment operators to increase footfall, dwell time and spend. Many occupiers are likely to use and fit-out space in the future in a different way. Customers will be attracted to brands where the internal physical environment offers the opportunity to meet, shop, work, rest and play.
“Extensions to established centres will account for around a quarter of new space and there is good logic behind that. The planning process is shorter, they have existing public transport solutions and a ready-made customer base to tap into – all of which reduces risk. As schemes get larger they can also attract more visitors and become regional destinations in their own right, which can bring additional benefits to the host city or town as well as the wider region.”
France, the most active shopping centre development market in Western Europe in 2016, also has the strongest development pipeline in Western Europe. More than 931,000 sqm of new space is scheduled to be delivered to the market in 2017-2018, of which approximately 56% is in the key regional cities of Paris, Marseille, Lille and Lyon.
In the UK, Brexit, rising inflation, limited wage growth and relatively high household debt are all expected to weigh on consumer confidence and retail sales growth in the short term, although the development pipeline for 2017-18 is still strong, reflecting earlier commitments by developers. A total of 438,000 sqm of new space is currently under construction and due to be delivered in this period. This is the second strongest development pipeline in 2017-18 after France. Beyond 2017-18, the UK development pipeline will be helped by supportive measures from local authorities, which are becoming more proactive and enabling the development of new shopping centres, including the acquisition of assets.
On a city basis Paris, Marseille, Helsinki, Madrid and London are the top 5 Western European development markets.
From an investment perspective, the Western European shopping centre market recorded a significant drop in volumes in the first half of 2016, with just €9.3bn transacted, a 40% year-on-year decrease. Investment activity improved in H2 2016, with trading volumes reaching €11.1bn, although this was still an 8.9% year-on-year decline on the same period 12 months earlier. In total, €20.4bn was transacted in the shopping centre market in Western Europe in 2016.
Central & Eastern Europe
Turkey has the strongest development pipeline in Europe for 2017-18, standing at 1.55m sqm. This is despite an expected increase in projects being put on hold due to geopolitical and economic risks. Russia accounts for the second-strongest development pipeline in CEE at 1.46m sqm, with key projects including the opening of the 120,000 sqm Vegas III shopping centre in Moscow and the 107,000 sqm extension of the Evropa shopping centre in Kursk.
Poland is expected to add 546,000 sqm of new shopping centre space in 2017-18, which will be the third largest development pipeline in CEE. Examples of large schemes currently under construction include the 67,000 sqm Galeria Młociny and the 64,000 sqm Galeria Połnocna in Warsaw, the 64,000 sqm Wroclavia in Wrocław and the 42,000 sqm Serenada in Krakow.
The Czech Republic has 57,000 sqm of new space in the development pipeline – of which nearly 80% will be delivered through extension projects.
CEE shopping centre investment fell by more than 30% year-on-year to €3.8bn in 2016, spread equally between the first and second halves of the year. Poland was the dominant performer in the region in H2 2016, accounting for over 46% of the total investment volumes. In contrast, Russia recorded only €134m across six deals in the second half of the year while there were no shopping centre deals at all in Turkey during this period.
Report author Silvia Jodlowski, a Research Analyst in Cushman & Wakefield’s EMEA Research & Insight team, said: “Across Europe, future development activity is expected to be focused on locations with a good balance of low shopping centre density, high consumer spending, a low risk environment and where the existing stock is in need of refurbishment or redevelopment.
“In Western Europe, London and Edinburgh have strong potential for future growth, driven mainly by extensions and redevelopments of existing centres. Cologne, Hamburg and Lyon are other locations offering good development potential.
“In CEE, strong development activity in the last ten years has led to significant growth in shopping centre density in many of the region’s capital cities. Prague, Bucharest and Budapest are the exceptions, as shopping centre density is below the CEE city average. However, developers are also increasingly targeting opportunities in fast-growing second-tier cities such as Krakow and Wroclaw in Poland. The main Turkish cities of Ankara and Istanbul should be the potential future hotspots for development, however the economic and geopolitical risks remain.”