Center developers in upheaval
The big developers develop little and leave some fields to the smaller ones. The end of the big center developments?
The leading assortment of city centres and shopping centres is staggering. Gerry Weber wants to close 103 branches, Zero is insolvent. Where Esprit, S.Oliver and Street One are heading is uncertain? In addition, there is the concentration process of other sectors: REWE and Edeka – much more is not in the supermarket sector. Rossmann and dm share the drugstore turnover with a few local exceptions. You can count expanding family shoe shops throughout Germany on one hand and booksellers … perhaps two fingers are enough for that.
The major developers of shopping centers have to react to this. And how (?)! .
At Unibail Rodamco Germany, formerly mfi, the French parent company sets the direction: “Big is beautiful”. But the recently opened centers from the “old” mfi pipeline in Recklinghausen and Mönchengladbach do not go very well with the centers in Madrid, Paris, Warsaw and other European metropolises where Unibail has reached for market leadership. At least they still meet the minimum size requirement of 40,000 m² of retail space. With Osnabrück, which has not yet been realised, things are much more difficult in Paris: How can the small town unfold the great experience of having the customer tear out of the comfortable armchair in front of the screen and take the way to the centre in a small area? How to implement the 4-Star service? How to implement the food experience? Unibail is also used to dictating: It has the space in the interesting big cities that every chain store operator simply has to occupy, and they simply have their price. But can this dictate also be implemented in Osnabrück?
Just the project in Hamburg mentioned at the beginning meets the Unibail criteria, which are nothing new and have always been a mantra for insiders: Large city and large area. Unibail follows this rule with discipline. But in which large city are spaces available from 10,000m²? What (still) permits large retail developments? Their number is as manageable as that of the expansive booksellers. The French group is keeping large formats in its portfolio: the available 50 percent of CentrO was acquired, as was the retail dinosaur Ruhr-Park Bochum, which is to be led into a secure future with professional modernisation.
With the other internationally active project developers, little or nothing is happening in Germany: Multi Development and MAB from Holland have withdrawn. Sonae Sierra from Portugal was able to convince with the Alexa, the Loop 5 near Darmstadt was already more difficult and the Hofgarten in Solingen is not exactly the prototype of a shopping centre that has come to the point. Whether Nuremberg really comes remains to be seen. The newcomer Klepierre – like Unibail a French heavyweight – will probably have more to do with revitalizing the Corio portfolio (which Corio previously bought from Multi Development) than with developing new centers.
Only what is under development today can open by 2020. Insiders have known it for a long time: the pipelines of former project developer grandees are now trickling down.
Centers for small and medium-sized cities
A few years ago, ECE set up its own department for the development of smaller centres in small and medium-sized towns. The hopes associated with this were not fulfilled. The political processes for planning and construction law also proved difficult in the medium-sized cities. Uncertain by location experts critical of the center, professors of urban development who were far removed from reality, contentious real estate owners, citizens who were eager to sue and neighboring cities, many administrations and politicians withdrew to the line of least resistance. Too small centers with too many restrictions in the industry mix remained.
In addition, a giant stepped onto the game plan, ploughing up the retail landscape and whose seed is only just beginning to grow: The Internet. Five years ago, ECE in the province of Velbert would have had a mall full of rental power – but the Internet has overpowered the powerful ECE. Retreat was the only way out.
So it is not ECE that is realizing smaller centers in smaller cities, but HBB. Hanseatische Betreuungs- und Beteiligungsgesellschaft mbH, also based in Hamburg, operates under the radar of major corporations in cities such as Gummersbach, Hanau and Troisdorf.
Many smaller project developers are involved in less prominent locations: Concepta takes over the ECE project in Velbert, DIG one in Homburg in Saarland. Like DC Commercial in Ulm, CEMAGG in Weil am Rhein or Acrest in Göppingen, recently taken over by JLL, they want to prove that smaller formats in smaller cities can develop the suction effect required for a lively, functioning centre.
Quo Vadis big shopping center developments?
Let’s take a look at Recklinghausen and Palais Vest. “Too expensive, too big, too many tenants for this city. You hear that every now and then. New tones, because actually it should be big – so that the variety can be offered in order to be dominant and also in order to be able to distribute the high operating costs among many tenants. Cleaning, guarding, maintenance and good center management cost money, and many better shoulders. So why these voices? Zara, H&M and Primark are expansive after all. Media Markt and Saturn are doing better than they did years ago. With Reserved, fashion competence follows. That’s true. But the top dogs know their market value, there’s not much rent to be made with them. What is increasingly missing is the substructure. The second row in the fashion sector is weakening; the Esprits, the S. Olivers, the Street Ones. Since the fashion sector accounts for 50% of the total rental space, the center industry feels this painfully. It is becoming increasingly difficult to attract more than 100 professional operators to a centre that is not in the top league.
So that’s it with new developments in large format? Or will it continue where it began: the department stores? With large areas in prime locations, they have potential. René Bencko and his Signa will be putting Karstadt properties in selected locations to new uses. And the recent takeover of Kaufhof real estate by Hudson’s Bay and its joint venture with development giant Simon Property Group from the USA gives reason to expect a lot.
Authors: Matthias Böning and Dr. Christof Glatzel, Boening & Glatzel GmbH
Shopping Center Report 2016