Eastern European Markets Lead Shopping Centre Pipeline
Eastern European markets continue to lead shopping centre development with 60% of space under construction located in Russia and Turkey, reports leading property advisor CBRE.
During H1 2015, the total amount of new shopping centre space completed across Europe stands at 1.36 million sq m and just under 12 million sq m under construction, with Russia responsible for over half of completions. Russia and Turkey have a combined total of 7.18 million sq m of shopping centre space under construction. Activity in Turkey has been driven by an increasing affluent young population, whilst Russia benefits from a number of cities with large middle class populations.
However, the overall levels of completions and space in the pipeline are starting to decrease due to a slowdown in Russia and Turkey. The scale of Russian and Turkish development naturally impacts the overall level of construction in Europe due to the large volume of space under construction in these markets. Turkey’s shopping centre market has gone hand in hand with the country’s economic growth – with 81% of Turkey’s entire stock delivered in the last decade.
In H1 2015, the number of completions in Turkey began to dramatically slow down with only 84,200 sq m in gross leasable area resulting in approximately only 11% of the planned new openings for the first half of the year being actualised as scheduled. In most cases, the current economic climate has seen the delivery dates of many projects strategically extended until Q4 in line with the forecast stabilisation of the Lira towards year end. Nevertheless, the elevated retail density in many urban catchments has left only marginal room for further new development. This has seen a marked decrease in dedicated retail developments and even a reduction in the allocated construction ratio, and resulting configuration, of retail in mixed use schemes.
In Russia although there is a great deal of space under construction, a large proportion is being delivered to the market with significant levels of vacant space through “technical openings” where the centre opens for trading with between 30-70% vacancy. Vacancy rates have been reduced in the last few months by the willingness of landlords to be flexible when negotiating lease terms.
Elsewhere in Europe, levels of construction remain largely unchanged which is ongoing across the board. Within Western Europe, France (704,451 sq m), Italy (485,500 sq m) and Germany (332,700 sq m) have the largest pipeline of space under construction. Development activity within Italy is gradually improving with a number of schemes moving from being on hold or in planning, to under construction. Western Europe continues to be characterised by a large deal of extensions and refurbishments to existing schemes as a way of revitalising existing centres.
In Germany, planning permission for large-scale retail is hard to achieve, since there are already significant developments. Due to this restriction there will be limited development in city centers and virtually none out of town.