European shopping center market reaches maturity as growth in new space slows
The growth in new European shopping center space has started to slow, as mature European markets begin to reach the peak of space required, according to the latest research from Cushman & Wakefield.
Over the last two decades, Europe has seen an average of 5.4 million square meters (58 million square feet) of new shopping center space built every year, but an annual average of just 3.5 million square meters (37.67 million square feet) of new space is scheduled to be completed in 2018 and 2019. Established retail markets and a shift toward online shopping have reduced the need for new space across Europe.
Although the need for new shopping centers is falling, ageing stock in the most mature markets presents a significant opportunity for redevelopment. One-third of Europe’s shopping center space was originally built more than 20 years ago.
In the first six months of 2018 Western Europe saw 373,000 square meters (4.01 million square feet) of new space created, an 8.2 percent year-on-year (y-o-y) rise, taking the total space available to 108.8 million square meters (1,171 million square feet). However, in the second half 2018 and into 2019, the region is expected to see just 2.1 million square meters (22.6 million square feet) of new space created, a fall of 25 percent y-o-y. Meanwhile, in the less mature Central and Eastern European (CEE) market, 676,000 square meters (7.27 million square feet) of space was created, an 18 percent fall y-o-y, taking the total to 57.4 million square meters (618 million square feet) of space. In second half 2018 and 2019, the region is expected to see the creation of 4 million square meters (43 million square feet) of space, a 2.4 percent y-on-y fall.
“Changing consumer behavior and the rise of online shopping is set to have an increasing impact in more mature markets, particularly in Western Europe,” said Silvia Jodlowski, senior research analyst at Cushman & Wakefield. “In developing shopping center markets in Central and Eastern Europe the requirement for space is increasingly impacted by macroeconomic trends — particularly in Turkey and Russia, where activity has been lower in H1 2018, which contrasts with Poland where a strong economy is driving growth.”
The United Kingdom was the most active Western European country in terms of new openings, adding nearly 90,000 square meters (970,000 square feet)
of new space in first half 2018, driven mainly by the 69,000 square meters (743,000 square feet) extension of Westfield Shopping Centre in White City, London. However, weaker demand for space, the growth of online retail, high levels of supply, and higher operating costs have curtailed development activity.
France added 83,000 square meters (893,000 square feet) of new shopping center space and recorded the second-highest amount of new shopping center development in Western Europe in first half 2018. In 2018, the volume of shopping center completions is expected to decline by 24 percent y-o-y, but this is expected to be offset by an increase in new formats, including a rise of 27 percent y-o-y in retail park openings and an increase in factory outlet centers of 5 percent y-o-y.
Finland had the third highest amount of new shopping center space in first half 2018, with 69,000 square meters (743,000 square feet) completed. Despite the expected strong growth in new space — with 312,000 square meters (3.4 million square feet) in the pipeline for second half 2018-2019 — Finland is still expected to require further space into the early 2020s due to strong population growth and improving purchasing power in Helsinki and other main cities.
Germany is also expected to see further growth in shopping center space. Nearly 60 percent of existing shopping center space in Germany was originally built over 20 years ago, and the country is therefore expecting more than 200,000 square meters (2.2 million square feet) of new shopping center space to open in second half 2018– 2019, with 24 percent of this space in the form of extensions to existing schemes.
Shopping center supply in Turkey rose by just 358,000 square meters (3.9 million square feet) in first half 2018, a near 40 percent decline on first half 2017. A slowdown in the economy, continued pressure on rents due to currency volatility and weaker consumer spending will see the trend continue in second half 2018– 2019, with 925,000 square meters (10 million square feet) of new space currently under construction and expected to open. This represents annual declines in development of 30 percent and 19 percent for 2018 and 2019, respectively.
Russia also saw a slowdown in the growth of new space, as a subdued consumer backdrop and a lack of credit resulted in less ambitious retailer expansion plans. New shopping center completions decreased by 7 percent y-o-y in first half 2018, while the total annual volume of 570,000 square meters (6.14 million square feet) of space scheduled to be completed for the full year will be the lowest since 2004. However, the volume of completions is expected to increase in 2018 - 2019, with Russia holding Europe’s top spot for shopping center development over the next 18 months. Approximately 1.9 million square meters (20 million square feet) of space is currently under construction.
Jodlowski added, “Most of Europe has now had over 20 years of continuous shopping center development — much more in the case of established markets such as the United Kingdom, France and Germany. Arguably, most European shopping center markets are at or near maturity, with net new additions to space likely to slow considerably. As a result, development will focus increasingly on the revitalization and renewal of existing space, as a growing number of older schemes become obsolete. In fact, over one-third of Europe’s shopping center space is now over 20 years old and, while much of this space has been refurbished and remodeled over time, equally much of it is ripe for redevelopment.”
