Shopping center investment moving east

Galeria Katowicka in Katowice, Poland.
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Russia and Ukraine are overtaking the Czech Republic and its neighbors in new malls

A growing proportion of the investment in shopping centers in Central and Eastern Europe is being made in Russia and the Ukraine, with the Czech Republic, Slovakia, Poland and Hungary seeing their share fall.

That is the key finding of a new report published by the commercial property company Colliers, which said the trend has been taking place over the past seven years.

The report, titled The Dynamic of Dominant Shopping Centers, described capitals such as Warsaw, Budapest, Prague and Bratislava as the “traditional safe havens for investment” and their respective countries as “the driving forces of retail investment activity.” By 2012/13, however, Ukraine and Russia accounted for about twice as much retail investment activity as these former driving forces.

“The potential for growth into Russia and the Ukraine has become a significant interest to many major retailers,” Colliers said in a statement.

A separate report from Cushman & Wakefield, a property consultancy, indicates however that there is still scope for more retail shopping developments in Central Europe and notes that more schemes are coming on stream in the Czech Republic.

Until around 2005, the Czech Republic, Slovakia, Poland and Hungary accounted for the overwhelming majority — more than 90 percent — of annual investment in major retail complexes in the wider Central and Eastern Europe region, figures published by Colliers indicate.

Within just two years, the picture had changed significantly, with Russia and Ukraine accounting for about 1.5 billion euros worth of retail investment activity, close to a quarter of the region’s total.  There was a similar level of investment in Southeast Europe, which includes Romania, Bulgaria, Serbia and Croatia, during the same year, again up from almost nothing a few years earlier.

There was a tailing off everywhere in 2008/09 as a result of the global financial crisis, then a recovery before another heavy drop hit in 2010/11.

Russia and Ukraine have recovered much more significantly from this second dip: In 2012/13, Central Europe accounted for about 0.75 billion euros of retail investment activity, while in Russia and Ukraine the figure was well above 1.5 billion euros.

In Moscow, it is only in the past five years or so that major projects started to open, even if their development dates back to the early 2000s. Now, Moscow has 16 major shopping centers which together cover around 750,000 square meters, putting the city second in Central and Eastern Europe, behind only Warsaw.

Prague is in fifth place with 15 shopping centers which between them have area of about 630,000 square meters. The Czech capital is above average in terms of the amount of space per capita, indicating according to Colliers that there is little prospect for growth.

It is Russia and Ukraine that dominate the charts when it comes to shopping center space in the pipeline, with Moscow’s “massive” total of 1.16 million square meters more than 10 times the figure for the whole of Central Europe, where just 110,800 square meters of new space is planned. Prague accounts for very little of even that modest total, according to the Colliers report.

“Moscow appears unsaturated and the scope for further expansion remains high,” the report said, with a “well below average” figure of 243 square meters per person at present.

“All the traditional [Central European] markets of Warsaw, Prague, Bratislava and Budapest seem relatively full — although there is capacity for some niche developments and extension or remodeling of existing projects — whereby any new schemes entering the market are likely to cannibalize other existing centers, or simply struggle to succeed,” said the report.

Growth in online retailing is another factor likely to increase competition for physical shopping centers in these markets.

The report published by Cushman and Wakefield (C&W) offers a markedly different tone when it comes to Central Europe’s prospects for shopping-center growth. The figures it reports also suggest more rapid growth in Central Europe than does the Colliers study.

Called the European Shopping Center Development report, the C&W paper noted that 190,000 square meters of new shopping center stock was delivered in the Czech Republic, Hungary, Poland and Slovakia in the first half of this year, out of a total of 1.8 million square meters for the whole of Europe.

In the second half of this year there will be 540,000 square meters of additional space in Central Europe, the report said, giving a total of 730,000 square meters for the year.

There have been two major openings in the Czech Republic this year, an extension to Centrum Černý Most, which is now 90,000 square meters in size, and Galerie Šantovka, a 46,000 square-meter project in Olomouc.

Jonathan Hallett, Central Europe managing partner at C&W, said in a statement that “there is still new development potential in Central Europe.”

“The focus today is on natural gaps within certain cities, but more importantly on the optimization of existing centers. We see the markets as developing naturally and converging to Western numbers at a reasonable pace,” he said.

Also emphasizing that the sector still had projects to come, Michal Sotak, head of research at Cushman and Wakefield Czech Republic and Slovakia said the Czech Republic had “a healthy pipeline of shopping center projects.”

Among the examples he cited was Quadrio, an 8,000 square-meter scheme in Prague and OC Kladno, which will consist of 26,000 square meters worth of space in Kladno, due to open midway through next year. Europe-wide, 171 new schemes and 65 extensions are set to be completed next year.

 

About the Author

Daniel Bardsley

Daniel Bardsley is the Prague Post's business editor and former China correspondent for The National, Abu Dhabi.

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