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LONG APPROVAL DELAYS FRUSTRATE DEVELOPERS

BY SUSAN THORNE

Brent Cross Shopping Centre, London, holds the dubious honor of being the U.K. record holder for lead time. It was 17 years in the making before it opened in 1976.

Shopping center developers the world over always want to get their new malls up as quickly as possible, but in Western Europe they have to be patient. Because of restrictive land-use regulation and other factors, it’s not unusual to have lead times of 10 or 15 years from first commitment to grand opening.

These long up-front waiting periods are often frustrating for developers, who look enviously across the Atlantic, but are quick to point out that the fault does not lie with them.

“Just for the record, we’re not stupid, and we’re not slow!” said Jenefer Greenwood, president of the British Council of Shopping Centres, or BCSC, and senior executive director and head of retail at CB Hillier Parker, both London-based.

Lead time has become a serious challenge, she points out, because a growing number of British projects are in urban areas, where they face such time-consuming processes as planning-commission approval, council inquiries, public debate and expropriation proceedings.

“Ten years is not an unreasonable time from the first gleam in the developer’s eye until opening day,” she said.

The U.K. lead-time record holder is the 79,900-square-meter (860,065-square-foot) Brent Cross Shopping Centre, London, England’s first large enclosed mall, which was 17 years in the making before its 1976 opening. Paris-based Ségécé, a Continentwide shopping center developer, also took 17 years to open the 19,000-square-meter (204,478-square-foot) Boulogne Billancourt les Passages, a shopping center that opened in the Paris area in the late 1990s.

Multiple levels of government are one problem, but bureaucrats are not the only ones throwing up roadblocks. Political and special interest groups, and labor unions can also create complications, said Dominique Beghin, a Ségécé managing director of development. He cited as a case in point Ségécé’s proposed center at Port d’Aubervilliers, a northern Paris suburb, which was stopped by the city government despite consent from the local municipality.

“Even when you have general political consent, you still have to fight retailers’ associations, which are very powerful,” Beghin said.

The French government, for instance, protects small merchants from competitors with large retail complexes.

Under the national Rafferin Law of 1995, any proposal for a retail facility of 300 square meters or more is subject to review by the local planning authorities, who take the needs of small-store retailers into account before giving permission to develop.

Conditions vary widely from country to country, with some being worse than others, Beghin said. In Central Europe, Greece, Portugal and Spain, shopping center projects usually require three to 10 years from the site-purchase negotiations to the center launch, he said, but in Belgium, France and Italy, it’s more likely to take between eight and 15 years.

Those time frames are an expected part of the development environment in Europe, and the shopping center industry adjusts its financing, project scheduling and negotiation periods as best it can. But delays can wreak havoc on developers’ plans; by the time a project gets going, the original design may be outmoded, and the anchor tenants may no longer be available or even in existence.

“Many times we have started with a development concept based on particular anchors, but 10 years later they may not be opening new shop units, or their needs have changed,” Beghin said. Some developers can leave anchoring until late in the game, but others need to have anchors signed up in order to get financing.

Long lead times can also make projects vulnerable to economic cycles, which in turn may further prolong things.

“One scheme I was working on in 1988-’89, was delayed by the economic downturn [of the early 1990s] and finally opened in 1998-’99,” Greenwood said. “But by then it had been effectively overtaken by competitors.”

The real problem is not merely delay, but the inability to predict the course of events, points out John Bullough, retail director of Grosvenor Estate Holdings, a London-based, mixed-use developer.

“Uncertainty about timing, by its nature, increases the range of risk,” he said. “Managing risk means trying to balance out the funds involved versus the progress made.” Mixed-use projects, such as Grosvenor’s Paradise Street scheme in Liverpool (see Liverpool to revamp retail …), offer some security by diversifying and spreading risk over other real estate categories besides retail, he said.

Developers have learned to play the odds by being adaptable and leaving till last those things, such as design, which are most sensitive to market changes. Helmut Koprian, managing director of center management at Hamburg, Germany-based ECE Projektmanagement, says his company avoids design obsolescence by opting for modern architectural approaches that will keep for at least 20 to 25 years. Beghin recommends building flexible spaces that can be adapted for different uses and store sizes, as well as design elements that can be updated easily.

“We always anticipate being ready to change the exterior,” he said. Though planning and preparing for a center may take 12 to 14 years, developers can often defer decisions about construction to the last few years before opening; by then, they can anticipate design trends in a more timely way.

Yet the unpredictable still happens, Greenwood points out.

“Flexibility becomes a pathetic little word when you’re faced with something like the growing size requirement of tenants,” she said. She is referring to the jump many retailers have made over the past decade from stores of a few thousand square feet to ones with areas of 10,000 or 20,000 square feet.

“H&M is going up to 30,000, and Next has just announced a 150,000-square-foot store in Manchester [England],” Greenwood said. There are tricks of the trade to accommodate these radical changes, Greenwood notes. “You need to work on a grid so you can give them five or six bays, then add boutique stores along the front.”

Shoppers themselves are yet another unknown. When a mall won’t be up until 2013, how can developers and retailers predict who their customers will be and what they will be buying? BCSC and Grosvenor recently addressed that very problem in a jointly commissioned study that outlines expected English demographic and consumer trends for the next 10 to 20 years.

For the moment, Europe’s long development pipeline isn’t getting visibly shorter. “We face more and more complications each day,” said Beghin. Some European countries that previously offered opportunities for relatively fast development, such as Spain, have tightened their control of new projects. Scott Abbey, manager of retail synergy at development-management firm Rodamco Europe, Rotterdam, the Netherlands, said Central Europe is also getting more difficult in this respect. But there’s an upside to prolonging development, believe it or not.

“There is a relatively low risk of new competition, and the value of the shopping center is high once [it’s] built,” said John Richards, CEO of Hammerson, a London-based shopping center development and management firm.

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