The global shopping centre sector is experiencing unprecedented levels of construction and new openings, especially in emerging markets. Nelville Moss explores the trends
Uncertain economic times have not prevented global shopping centre development from continuing apace, with unprecedented levels of construction and new openings taking place across the globe. However, there are wide discrepancies between regions, with activity heavily focused in emerging markets.
These markets, such as China, Turkey and India, are far more active than the more mature markets of Western Europe and North America, according to the latest research by global property advisor CBRE. Growing middle class populations have led to an upsurge in new development to meet demand, while the maturity of the retail sector in Western Europe and North America has forced retailers from these markets to cross borders to grow their businesses.
In a wide-ranging global study, CBRE measured the level of shopping centre development in 180 of the world's major cities throughout 2011. It found that Chinese cities were dominating shopping centre construction activity, taking four of the top five spots. Exactly half of all the shopping centre space under construction is in China, with Asia accounting for 70% of all schemes currently being built. In contrast, only five cites in Western Europe saw the opening of a new centre last year.
Shenyang, home to 8.1m people, was the runaway leader. Six new centres totalling more than 1m sqm opened there in 2011. In second place was Wuhan, population 9.8m, where 574,000sqm of new space opened, also in six centres. While the amount of new space built in China's first and second-tier cities in 2011 was huge, this level of development has been sustained for a number of years and in many cities there is more to come.
Even though China's economic boom and growing middle class has led to a major increase in consumer spending, the rapid expansion of shopping centre space has in many cities outpaced consumer demand. Development has been fuelled by a lax planning regime, the belief on the part of developers that retail provides the best returns and a lack of understanding among some local developers of how much space is required to satisfy consumer demand.
Nevertheless there are still opportunities for new developments, particularly for modern high quality shopping centres as department stores - the first retail developments - become less popular with both retailers and consumers.
Development activity was high in all the BRIC countries (Brazil, Russia, India and China) in 2011, and also in cities such as Kuala Lumpur, Mexico City, Hanoi, Istanbul and Ankara. Looking ahead, the most active markets (outside of China) are Abu Dhabi, Hanoi, Kuala Lumpur (Klang Valley), New Delhi and Sao Paolo - five cities in three regions.
New shopping centres were completed in just 15 of the 96 European cities covered in the survey. Outside of Russia and Turkey, only Ukraine (Kiev and Kharkov) and Italy (Milan and Turin) saw the completion of more than one new centre.
This reflects not only the maturity of the shopping centre market in much of Europe but also the difficult economic environment. Likewise there was virtually no new development in the mature shopping centre markets of North America and the Pacific region in 2011. Activity in other mature markets was also limited. In total, only three mature cities saw more than 100,000sqm of completions in 2011: Seoul with two very large schemes; London, with the completion of Westfield Stratford City, and Osaka where three centres opened.
Too much retail space is one reason development activity in Western Europe is low but this ignores the fact that there is still a lack of quality of space in many markets. Modern units of the size, type and in the location that retailers require remain in short supply.
This suggests that redevelopment of existing retail space, whether in shopping centres or high street locations, will remain the focus of development activity over coming years. Equally, new shopping centre completions are expected to pick up as economic conditions improve - there are still significant opportunities in some locations.
New shopping centres play a key role in attracting international retailers to emerging countries and cities, principally because there is an historic lack of high quality, prime space in these markets. In recent years, for example, new centres have been instrumental in attracting retailers to Dubai, China and India. And this was also the case in 2011. Of the top 10 cities in terms of new retailer market entries, as identified in CBRE's How Global is the Business of Retail? report, new shopping centres were completed in five of these: Moscow (two schemes), Kiev (one), Ho Chi Minh City (one), Seoul (two) and Kharkov (one).
The anomaly was Kazakhstan where 18 new market entries were recorded in 2011, but no new shopping centres opened. However, six centres have been completed in recent years and another seven are under construction, suggesting that 2011 was a blip year during an extended period of development. The retailers entering Kazakhstan last year took space in the centres that opened in 2009 and 2010.
As emerging markets evolve, new retailer entrants typically have more choice of quality product and will not necessarily seek out or indeed have access to a new centre. This was the case in Warsaw (six new market entrants) where no new shopping centres opened in 2011. Retailers are initially attracted to the trading opportunity for their brand in a new market, but the ability to access the right type of space is equally important to a retailers' success, particularly in an emerging market in the early stages of its evolution.
But accessing the right type of space can also be an issue in mature markets, as retailers are increasingly targeting only prime locations. With shopping centre development at very low levels in mature markets, due to a difficult consumer environment and a lack of development financing, smaller scale development and extensions to existing space are facilitating retailers' ability to enter some markets. For example, high street units refurbished to a high standard helped Sydney attract four new international retailers in 2011.
One factor that cannot be ignored is the rapid growth in online retailing. It will undoubtedly have an impact on shopping-centre development over the next 10 years - particularly in the mature markets where retailers are reviewing their retail real estate strategies to reflect their multi-channel platform.
In emerging markets, shiny new shopping centres are likely to hold the attention of shoppers for some time to come, but the rapid evolution in online retailing suggests that even here, e-commerce will soon be shaping the demand for new retail space.
The shopping centre concept, once the preserve of the western world, has become ubiquitous. Retailers seeking to grow their businesses in emerging markets have benefited significantly from the development of new centres, while extensions to existing schemes and redevelopment plays an important part in attracting new international retailers to more mature markets. However, with retailers increasingly focused on accessing the best space in the top locations, demand for prime space continues to outstrip supply in most markets - even in China.
Neville Moss is director and head of EMEA retail research at CBRE