According to fresh research from Cushman & Wakefield, Russia has now surpassed France as Europe's largest shopping centre market after a number of large-scale malls were delivered to the European market in H2 2014.
Russia's total shopping centre stock increased to more than 17.7 million sq m at the end of 2014, surpassing France's 17.66 million sq m GLA. With 17.1 million sq m, the United Kingdom is Europe's third largest market. lusail marina
According to Cushman & Wakefield's latest European Shopping Centre Development report, total shopping center floor space in Europe reached 152.3 million sq m on January 1, 2015, up 3.3 percent from the previous year. While Western Europe now accounts for 69 percent of total developed space, development activity in Central and Eastern Europe (CEE) accelerated in H2 2014, with 2.2 million sq m delivered to the market vs 981,000 in Western Europe.
Consumer desire for larger shopping malls with a broader variety of merchants, a wider range of leisure activities, and a wider range of food and beverage options has fueled development activity across Europe.
As developers aim to 'future-proof' tiny or outmoded centers in Western Europe's main markets, there has been an increase in the number of extensions and refurbishments, whereas CEE is still dominated by the building of new, dominant regional centers that service a wide catchment area. These patterns are expected to continue in 2015 and 2016, with Russia and Turkey dominating the development pipeline while overall density remains low, albeit the completion of Russian projects will be contingent on funding circumstances and the larger geopolitical situation. In Western Europe, development activity is picking up in countries with lower densities, such as Italy and Spain, with Italy's pipeline more than double that of the UK over the next two years.
Maxim Karbasnikoff, Cushman & Wakefield's head of retail services in Russia, said, "Since March 2014, the Russian retail market has been under unprecedented pressure. Aside from the Ukrainian crisis and subsequent sanctions, rouble and oil depreciation, particularly in the second half of last year, has put occupiers in a state of near panic. Surprisingly, the large amount of new supply delivered remains mostly vacant, with occupiers preferring to optimize their existing network rather than create outlets with no financial certainty. Nonetheless, we believe the industry is exhibiting indications of resiliency and has now entered a consolidation phase, based on consistent retailer sales in Q1 2015, recent rouble appreciation, minimal vacancy in existing malls, and a relatively smaller pipeline of new projects."
Investment demand has been extremely strong over the last year, and as a result of the ownership of a number of top-tier centers changing hands, prime yields in many markets have fallen to levels close to pre-crisis levels. However, a shortage of current supply is upsetting investors, causing demand to stretch further to new target regions such as Spain, as well as stimulating increased interest in second-tier markets and assets in search of chances. Portfolio restructuring by funds, particularly leading REITs, has resulted in fresh supply in some areas, but further development will be even more critical in the future to meet investor and retailer demand.
"Customers' ability to interact with their favorite businesses in a well-designed, entertaining, and culturally-rich environment has never been more crucial than with the rise of online commerce. To give centers a distinct identity, several developers across Europe have chosen to build more large-scale projects with major leisure options and an increasing percentage of food and beverage operators ", says Justin Taylor, head of EMEA retail at Cushman & Wakefield.