Russia is leading Europe’s retail boom, says Neville Moss
Fifty years after Europe’s first shopping centres were built, development is booming as never before (see graph 1): 2006 was a record year as around 56m sq ft (5.2m sq m) of new space was completed, following 2005’s record 48m sq ft (4.5m sq m).
Russia topped the league, opening 36 schemes providing 15m sq ft (1.4m sq m). Italy and Spain were the second and third most active markets, offering 6.6m sq ft (610,000 sq m) and 6.1m sq ft (570,000 sq m) respectively, followed by Germany, Turkey and Poland.
More of the same is expected in 2007/08: a record supply of shopping centre space is planned (see graph 2). Russia has the largest development pipeline by some distance, with about 43m sq ft (4m sq m) due for completion in 2007/08. Turkey is in second place with 23.7m sq ft (2.2m sq m), almost level with but fractionally ahead of Italy, and Poland with 20.5m sq ft (1.9m sq m).
In Russia, Moscow has been the main focus for shopping centre development and international retailer expansion, but developers and retailers are now targeting the regions. In the ‘millionniki’ the 11 provincial cities with a population of more than one million stock is expected to rise from 10.8m sq ft (1m sq m) today to 36.6m sq ft (3.4m sq m) by 2008.
The Moscow development market remains buoyant, however, and includes the 861,141 sq ft (80,000 sq m) Metropolis site. Due for completion in 2008, it is one of the city’s first malls geared towards the wealthier shopper. embracing the western model
In Turkey, an increasingly urban and very young population – 70% aged under 35 compared with less than 50% in western Europe is becoming richer and embracing western shopping habits. This is driving the retail sector and the development of malls. There were 26 openings in 2006, including the highly innovative Kanyon shopping centre in Istanbul (Property Week, 29.09.06), which is anchored by Harvey Nichols.
Over the next two years, more than 60 centres are scheduled to open in Turkey.
The biggest share of the pipeline 43 schemes will be developed in Istanbul and the capital, Ankara, but regional markets are growing in importance another 18 schemes are due for completion in cities such as Bursa, Izmir and Antalya.
Against this backdrop of development, the retail investment market in continental Europe remains buoyant (see graph 3). Jones Lang LaSalle recorded a total volume of €10.6bn (£7.2bn) in the first half of 2007, on a par with the €11.1bn (£7.5 bn) for the same period last year. Germany remains the prime area for activity: €4.3bn (£2.9bn) was spent there in the first half of this year.
Despite this dominance, the market remains pan-European: transactions are taking place in more than 20 countries. Sweden, France, Spain, and Russia were the next most active markets after Germany.
Shopping centres are still the prime target for investors 50% of volume in the first half but retail warehousing continues to grow in importance, and solus units represented 30% of transaction volumes in the first half of 2007, compared with 19% in 2006.
Although transactions can take longer to complete, there is strong competition for prime assets and assets with opportunities to add value. In addition, we have noted more stock coming to market. Total transaction volumes for 2007 are expected to be similar to the record levels achieved in 2006.
Neville Moss is head of retail research at Jones Lang LaSalle