Upturn expected in Shopping Centre Development Report in Europe

An upturn in shopping centre development in Europe is on the horizon, according to Cushman & Wakefield, European Shopping Centres Report 2011. Although, development has been subdued in some countries for the past few years, improving retailer demand and concerns about potential shortages of prime space are contributing to expectations of a rise in development activity in many European countries.

More than 2.1 million sq.m of new shopping centre space in Europe was completed in the first half of 2011, roughly equal to that of the same period in 2010. 71 new shopping centres accounted for 90% of this space, while extensions of existing schemes made up the remaining 10%.

If all the projects scheduled are finished on time, the development total for 2011 will be 26% higher than that of last year when completion levels fell for the second consecutive year. Around 5.4 million sq.m of shopping centre space was completed in 2010, a fall of 29% from 2009 and the lowest annual completion total since 2004.

As with previous years, Central and Eastern Europe accounted for the majority (58%) of new space opened in the first half of 2011 with strong development levels in Russia, Turkey and Poland. The largest scheme completed was Marmara Forum in Istanbul (156,000 sq.m). Just over 400,000 sq.m of shopping space completed in Russia - nearly one fifth of the European total. With the opening of AFIMALL City and two other shopping centres, Moscow accounted for 36% of the new space in Russia. Major projects were also completed in Novosibirsk, Yaroslavl, Kazan and St Petersburg. In Western Europe, Italy and Spain recorded the largest volume of new space added.

5.8 million sq.m of shopping centre space across Europe is scheduled for completion in 2012, although this figure will depend on occupier demand and the pace of economic recovery. Russia and Turkey

account for 41% of the H2 2011/2012 pipeline. In Russia, nearly three million sq.m of new space is expected to be completed before the end of next year, including schemes larger than 100,000 sq.m in Krasnodar, Ufa and Samara. In Turkey more than 800,000sq.m is under construction, most of which is located in Istanbul.

In Western Europe, France and Italy top the H2 2011/2012 pipeline table. France is expected to see a rebound in completions after last year's slowdown. In Italy, several large schemes are in the pipeline, although there is some uncertainty about completion dates after a spate of recent delays.

Elsewhere, notably in Germany and the UK, activity remains subdued. In Germany, the 2011 and 2012 development totals are likely to be the lowest for more than 20 years. In the UK, the 2011 projected completion total is massively skewed by Westfield Stratford City (176,500 sq.m, opened 13 September) which accounts for 81% of the pipeline for the second half of the year. Completions are expected to slow dramatically next year resulting in the lowest annual provision of new shopping centre space in the UK for more than 50 years.

Justin Taylor, UK CEO Retail & Leisure, Cushman & Wakefield said: 'We see a number of European locations which have an under-provision of quality retail space and strong retailer demand. The health of many occupational markets has continued to improve, and prime rents have risen in around a third of the countries surveyed. However, occupier demand remains subdued and highly selective in many countries and there is going to be a period of continued uncertainty as further austerity measures across most of Europe take effect.'

European retail investment volume totalled nearly €19.8 billion in the first half, 4% lower than the previous six months' level and 9% up on the corresponding period of 2010. Retail's share of total commercial property investment edged up to approximately 35%, up from 33% in 2010.

Germany, Sweden, Russia, Turkey, and a number of smaller CEE markets saw retail investment volumes increase considerably relative to both the previous six months and the first half of 2010. In Germany, retail investment volume increased by 37% year-on-year, while Sweden saw annual growth of nearly 91%. In Russia, Turkey and Italy, Q1 2011 saw the highest quarterly retail transaction totals since 2007/08.

However, several European countries recorded significant declines in activity. In absolute terms, Spain saw the largest year-on-year contraction in Europe: retail volume in the first half was nearly €1.2bn lower

than that in the first half of 2010, which amounts to an annual fall of 79%. Norway, France and the Netherlands also saw large declines in investment volume relative to both the previous six months and

the corresponding period of 2010. In Norway, retail volume declined by 73% year-on-year; in France, by 36%, and in the Netherlands, by 50%.

Mike Rodda, Head of Cross-border Retail Investment, Cushman & Wakefield, said, 'We are in a two-speed market where the core markets (UK, France and Germany), CEE, and increasingly Sweden are attracting the major focus. We have seen really significant yield compression in Poland this year, but the other markets are experiencing much thinner attention. Financing transactions is becoming increasingly problematic and will cause a number of deals to fall down before the year-end. However capital from new sources is growing as a number of larger transactions are attracting joint venture bids or co-investment between fund manager and the larger LP's.'

ROMANIA

Early indications suggest that the Romanian economy has returned to positive annual growth for the first time in over two years. Economic activity expanded by 1.7% in Q1 on the same period in 2010 and by 0.6% on the previous quarter. The progress was, however, primarily driven by external demand, with domestic expenditure still lagging behind. According to Eurostat, annual retail sales growth figures in Q2 have again proved disappointing, with sales volume falling by 5.9% in April and 6.0% in May.

In terms of supply, just under 11,000 sq.m of shopping centre space were delivered in the second quarter, consisting of the fourth phase of Bucharest Mall, the second phase of Estrada Shopping Centre in Bucharest (Cora Policolor Pantelimon), and the extension of shopping center in European Retail Park Braila. Elsewhere, the provision of retail warehouse space was boosted by the second phase of the Family Centre retail park in Ramnicu Valcea, which added 3,400 sq.m of GLA to the market.

No major retail investment transactions took place in the second quarter. City Mall in Bucharest is currently being offered for sale through an insolvency company, but it has failed to sell after four auctions, not finding a buyer even after a considerable reduction to the starting price.

Subsequent to a positive first quarter, economic activity is forecast to have slowed somewhat in Q2. Nevertheless, following two years of contraction the economy is showing encouraging signs. In addition, most of the economic conditions set as part of the IMF loan agreement have now been met, making the country eligible to receive new funding. The aforementioned developments are expected to provide further assurances to both occupiers and investors alike.

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Cushman & Wakefield is the world's largest privately-held commercial real estate services firm. Founded in 1917, it has 230 offices in 60 countries and more than 13,000 employees. The firm represents a diverse customer base ranging from small businesses to Fortune 500 companies. It offers a complete range of services within five primary disciplines: Transaction Services, including tenant and landlord representation in office, industrial and retail real estate; Capital Markets, including property sales, investment management, investment banking, debt and equity financing; Corporate Occupier & Investor Services, including integrated real estate strategies for large corporations and property owners; Consulting Services, including business and real estate consulting; and Valuation & Advisory, including appraisals, highest and best use analysis, dispute resolution and litigation support, along with specialized expertise in various industry sectors. A recognized leader in global real estate research, the firm publishes a broad array of proprietary reports available on its online Knowledge Center at www.cushmanwakefield.com.

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