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Shopping Centers Today -> July 2007
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EUROPE’S RETAIL REAL ESTATE RENAISSANCE
A WAVE OF NEW DEVELOPMENT IS ROLLING ACROSS THE CONTINENT
By Curt Hazlett
Judging by buzz alone, it would seem as if every retail developer with an interest in Europe is concentrating on deals in Kiev or Sofia or Tbilisi. Indeed plenty of them are, and that has made Central and Eastern Europe hot spots of growth. But the action in these emerging markets has hidden a broader trend in Western Europe, whose mature markets are enjoying a construction boom of their own. This has helped push the creation of new shopping center space there into record territory. In tradition-bound Italy, for instance, a country not always known for strong retail development, some 11 million square feet of space will have opened between July 2006 and December of this year, according to a report by Cushman & Wakefield. Nearly as much will be coming on in Spain, the report says, while Germany and France are set to add 8 million square feet and 7.3 million square feet, respectively. “There’s certainly been a lot going on,” said Yvonne Court, a partner and head of retail research at Cushman & Wakefield.
“The focus has been on Central and Eastern Europe, but you have to remember that it is coming off a low base, while in the rest of Western Europe there has been a lot of new development and a lot of refurbishment and extension.”
Cushman & Wakefield’s report shows a European pipeline jammed with activity. Spain leads the pack in overall shopping center projects for this year and next, with some 20 million square feet of space expected there. The second and third spots belong to Poland and Turkey, but the mature markets of the U.K., Italy, France and Germany are close behind.
Court says a big part of the pipeline involves renovations and expansions, the result of tighter restrictions on new ground-up development. But consumer expectations and a demand by eager-to-grow retailers play a role too.
The makeup of this construction boom varies by location. Court says Spain’s growth has been fueled largely by new projects, while the growth in the U.K., France and Germany is characterized by renovations and expansions, many of them in urban centers.
“Every country has projects in the pipeline, but there are a lot of differences,” said Jaap Gillis, COO of Amsterdam, Netherlands-based Redevco Europe Services and chairman of the ICSC European Board. “If you look at the Western Europe market, you will see more extensions and refurbishments than complete new malls. There is a huge portfolio in Europe of renovation and revivals of inner cities.”
Though Redevco has taken a particular interest in Central Europe and Turkey, Gillis says, the firm has properties throughout Europe — 17 countries in all. The company’s goal is to expand its portfolio to €10 billion ($13.5 billion). “Is Europe still available? Yes, there are a lot of opportunities,” said Gillis. “But you have to be careful which ones you choose.”
Even with such caveats, these mature markets are attracting investors. Among them is Simon Property Group, which is building four centers in Italy that are owned either fully or in part by its Italian partner, GCI, of which Simon owns 49 percent. Three of the centers — in Milan, Naples and Rome — are to open this year, and the fourth, also in Naples, is scheduled to open next year.
In addition, Simon has its eye on France. “We’re working very hard on two or three major projects in France,” said CFO Steve Sterrett during Simon’s first-quarter earnings conference call in April.
In Spain, where retail has been hot for over a decade, much of the action has pushed beyond the larger cities into secondary population centers, says Fraser Denton, director general of the Spanish operations of Milligan RRI, a U.K.-based developer (see sidebar below). One example of that push is Multi Corp.’s Espacio Buenavista, a 400,000-square-foot center that will open in November in Oviedo, northern Spain, a far less populated area than Madrid or Barcelona.
This is not to say that projects in urban centers are entirely out of favor, though. Montréal-based Ivanhoe Cambridge has teamed up with the Spanish firm of Lar Grosvenor to build the 900,000-square-foot Islazul Centro Comercial, on the outskirts of Madrid. (Ivanhoe Cambridge already has a strong presence there, having acquired the massive Madrid Xanadú from The Mills Corp. in October of last year.)
Spain and Italy between them accounted for about a quarter of the new retail space that entered the European market last year, according to Cushman & Wakefield. But the U.K., perhaps the most mature market in Europe, is also expected to be a major recipient of new space over the next few years, the firm says.
The report attributes the U.K.’s strength to a rise in major urban projects. These include Liverpool One, which is slated to open next year with 1.65 million square feet of retail on a 42-acre site in that northern British city center; the expansion of the existing Broadmead retail center, in downtown Bristol, to 1.7 million square feet of retail; and the 2008 opening of Westfield London, a 1.65 million-square-foot center in the Shepherd’s Bush section of the city. “The future of shopping centers lies in urban areas in communities that are accessible, preferably by foot, and provide a mixture of uses so that people can live, play, shop and work in the same area,” Court said at the ICSC Spring Convention in May. “Place matters.”
SPAIN LEADS IN EUROPE’S DEVELOPMENT RACE
Spanish retail development has been going full throttle for better than a decade, but Milligan RRI, a London-based retail developer and asset management company, believes there is still plenty of potential — enough to justify opening an office in Barcelona to take advantage of it. “There have been a lot of centers built in the big cities, and it is getting harder there,” said Fraser Denton, director general of Milligan’s Spanish operations. “But there are more small projects being built in secondary cities. The first centers that were built are in need of upgrading, so the refurbishment market is the next push in Spain.”
According to Cushman & Wakefield’s April report on European shopping center construction, some 20 million square feet of retail space is in the development pipeline in Spain through the end of 2008, the largest amount in any European country. Denton acknowledges that the boom has caused crowding in some areas. “It is fair to say that most of the big cities now have a sufficient number of regional and semiregional malls,” he said. “Madrid still has just one major project in the licensing process, but it certainly has become a crowded market. Barcelona is less so, because of political controls on planning.” Overall, “it’s not a good time to move to Spain if you want to build large shopping centers,” he said.
Denton points to Barcelona’s Maremagnum shopping center as an example of the opportunities that exist in renovating older centers. In 2004, before Denton joined Milligan, he teamed up with the company to buy Maremagnum, a failing center in the port area of Barcelona. “It was very troubled,” he said. “Nobody would touch it, even though it’s in a great location. It was 50 percent vacant, it had a poor mix of retailers and there were no brands.” The partners expanded the center and repositioned it as a daytime destination. “We called it a two-hour holiday,” Denton said. “When you are down there, you are in a different world. You escape from the city.” The effort worked. Maremagnum won an ICSC award for the expansion and renovation last year, and the partners sold it for $164 million to European investment fund Corio Group. Denton says Milligan will now focus on new construction, including a portside shopping center in Málaga. Smaller centers in secondary cities offer continued potential, he says, as does the need for improved management of assets acquired by international investors. “Spain has been one of the best-performing economies of the past few years,” he said. “You could almost call the Spanish the nouveau riche of Europe. It has had 25 years of stability and growth, and the economy is getting stronger and stronger.”
REDEVELOPMENT, EUROPEAN-STYLE
Europark
Salzburg, Austria
This center, which opened in Mozart’s hometown in 1997, performed well from the start, but a 2005 expansion gave it even more cachet. Retail space was increased from 325,000 square feet to nearly 550,000 square feet and some 40 stores and 1,900 parking spaces were added. The owner, SPAR, is the largest shopping center owner in Austria and also owns malls in Italy, the Czech Republic, Hungary and Slovenia.
Allee Center
Magdeburg, Germany
Owned by Germany’s ECE Projektmanagement, Europe’s largest retail developer, with a portfolio of 89 shopping centers and an additional 20 under development, Allee Center is located in an ancient city that was part of East Germany. The property was opened in 1998 and expanded in 2006 to contain 375,000 square feet of retail on three levels, and 150 stores.
Manchester Arndale
Manchester, England
Built in the 1970s, this downtown center found new life after a portion was blown up in an IRA bombing in 1996. Rebuilt and expanded in phases, the mall now contains 1.4 million square feet of retail space, making it one of the largest shopping centers in the U.K. Prudential is the owner.
The Bullring
Birmingham, England
This concrete shopping center opened as the Bull Ring Shopping Centre in 1962 on 23 acres in the city center of Birmingham, on land that had been a market and gathering place for 800 years. The center did not age well, and in 2003 a redesigned and renamed Bullring finally opened after decades of debate and design work. Anchored by a dramatically designed Selfridges department store, the Bullring has found new popularity and is, says Court, “Europe’s new benchmark” for shopping center design.
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