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Beyond Budapest

Hungarian developers cope with crowded market

by Susan Thorne

More and more developers are locating shopping centers — like Szeged Plaza — in secondary markets.More and more developers are locating shopping centers — like Szeged Plaza — in secondary markets.

“It’s no secret that Eastern Europe will equalize with the West in living standard
— maybe not in five years, but eventually.”
— Sammy Smucha.

BUDAPEST — Can any more shopping centers be profitably squeezed into Hungary’s crowded retail landscape? Some developers here perceive niche opportunities for carefully targeted projects.

Starting with the 1996 opening of Hungary’s first Western-style shopping mall, five years of development activity have produced nearly 3 million square feet of shopping center floor space for Budapest’s 2 million inhabitants, according to data from Jones Lang LaSalle. The Hungarian Council of Shopping Centers counts more than 30 shopping centers of various sizes and types in the greater Budapest area today.

Aside from North American-style enclosed centers, mostly in the capital city, there is extensive greenfield development following the so-called European model — the hypermarket-based center. Drive into the countryside near Budapest or other population concentrations, and you’ll see newly minted roadside plazas of Carrefour, Tesco, Auchan, Cora, Metro and other big-format grocery store retailers — and signs announcing other future superstores. These abbreviated shopping centers typically have around 35,000 square meters (350,000 square feet) of retail space, with roughly half devoted to a grocery/discount hypermarket and half occupied by operations of electronics, sport and fashion retailers. Do-it-yourself and office and home-furnishing retailers such as Tengelmann, OBI, Bau-Max and Office Depot are also developing their own freestanding suburban and rural big-format stores, which further dilute the retail market.

The malling of Budapest combined with the more recent hypermarket phase covers many of the primary development center concept, said Zsuzsanna Horvath, secretary general of the Hungarian Council of Shopping Centers, Budapest. “We have an overwhelming majority of out-of-town, suburban centers,” she said.

But there are still niche opportunities for those with the right center concept, said Zsuzsanna Horvath, secretary general of the Hungarian Council of Shopping Centers, Budapest. “We have an overwhelming majority of out-of-town, suburban centers,” she said.

“I think malls that fill the role of a community center, a gathering place with entertainment, services and leisure attractions, will have great success. There is room even in Budapest for some more of this development.”

Horvath pointed out that some newer Budapest-area malls are positioning themselves as town center-type destinations.

West End City Center, the mixed-use complex opened by TriGranit last year, has a strong food-service and entertainment component, including Hungary’s first 14-screen cinema with stadium seating. Other centers are retrofitting or expanding to include such features: The 27,300-square-meter Mammut Center, for example, will devote nearly half the space in a new 3,000-square-meter wing (set to open by fall 2001) to service- and entertainment-oriented tenants such as bowling, an internet cafe, a cinema multiplex and medical center.

“Obviously you can increase your catchment area when you’re a full-service center,’’ said spokeswoman Eva Tabori, “and you can capture the family outing when you have [entertainment] activities for everyone, so people will spend the whole day in the center.”

The strategy also differentiates the mall from many centers that focus narrowly on apparel and home goods.

Smaller town-center concepts for secondary cities also have potential, Horvath maintains. Early shopping center development in Hungary tended to center around Budapest, understandably since one-fifth of the national population of 10 million lives here, and the next-largest city has only one-tenth that number of inhabitants.

Yet while hypermarkets are dotting the countryside, the downtown areas of some Hungarian towns still have little modern retail and no shopping centers. Some developers are targeting these urban areas with scaled-down malls combining shopping and entertainment.

A leading contender in this sector is the Plaza Centers Europe Group, a Dutch-owned international developer with Eastern European operations based in Budapest. Plaza Centers Europe Group, also known as The Plaza Group, was the original developer of Duna Plaza, the first shopping and entertainment center in Central and Eastern Europe, opened in 1996. The Plaza Group has since sold Duna Plaza and is focusing on the rollout of a smaller shopping center model in cities of 100,000 to 200,000 where catchment and spending power are strong. To date it has opened such centers in seven cities — Debrecen, Pecs, Gyór, Miskolc, Csepel (northwest Budapest), Szeged and Szekesfehervar — and plans an eventual total of 17 nationwide.

Plaza differentiates itself from hypermarket plazas through its downtown locations, diverse retail offerings and strong entertainment elements. The typical Plaza center is sized between 10,000 and 20,000 square meters and includes retail stores and services such as a bank and dry cleaner; a food court, multiplex cinema and other entertainment attractions including bowling alleys (very popular in Hungary), video arcades, billiard rooms and center court special events. The company maintains its desired merchandise mix by renting rather than selling its store premises (selling is still common in Hungary), and creates a sort of branded mall identity through territory-wide leases to certain tenants: Israel Theaters (multiplex cinemas), EuroPlay and DunaPlay (video arcades), Muranyi electrical appliance shops, Alexandra (books and CDs), Humanic (shoes), Ronsmans (pharmacy/drugstores) and Julius Meinl (supermarkets).

While Plaza’s target towns generally have above-average spending power for Hungary, they have lower average purchasing power than Budapest. Yet Plaza President and CEO Sammy Smucha maintains that finding and capturing an untapped market is the main consideration in selecting secondary mall sites. “It’s no secret that Eastern Europe will equalize with the West in living standard — maybe not in five years, but eventually,” he said. “The idea is to enter the market and then be patient while spending power increases.”

Because Hungary’s secondary cities generally cannot support more than one central core mall, it is crucial to get in first and get in fast, he said. Most of Plaza’s malls in second-tier cities are the first central shopping centers for those urban areas, and construction in as little as seven months helps to effect a fast entry.

Plaza is also bringing a minimall concept (around 10,000 square meters) into some tertiary cities with a population under 500,000; two such centers, Nagykanizsa and Kaposvar Plazas, are due to open by year-end.

Shopping centers with the type of re-tail/entertainment mix exemplified by Plaza are a good fit with the secondary city customer market, said Pal Danos, a director with KPMG Property Services, Budapest, a real estate property consultancy.

Secondary-town centers generally function as regional centers for their larger surrounding catchment areas, Danos said, so ready accessibility by road is critical. Hungary has a limited highway network radiating out from Budapest, and well-located centers must consider its junctions and connections; he gives Plaza full marks in this respect. In addition, he noted, centers in towns such as Szeged or Debrecen are near the borders with Romania and Serbia, countries underserved by shopping centers that offer additional long-term potential.

Companies active with smaller town center-type projects in Hungary are also exporting their concepts to other parts of Eastern Europe.

TriGranit Development Corp., the TrizecHahn affiliate, is opening a 38,000-square-meter Carrefour-anchored mall in Bratislava in November. The Plaza Group plans to open 50 to 60 further shopping center projects of various sizes in Poland, the Czech Republic, Croatia, Romania, Greece, Slovakia and Slovenia.