#Mapic2014 Specialists carve up retail pie

Multi has emerged as a new contender for a piece of the European retail pie with its focus on asset management, writes PropertyEU's editor Judi Seebus in a special report on the European retail sector.

Europe’s retail real estate sector is writing a new chapter in its history. Following the announcement over the summer that Paris-listed Klépierre is taking over its smaller Dutch peer Corio, a new contender has emerged to challenge the established order. Under the ownership of US asset management giant Blackstone and the leadership of former Redevco CEO Jaap Blokhuis, Multi Corporation is poised to make a splash in the European retail arena. The Gouda-based company is symbolically moving its headquarters to Amsterdam and is now gearing up for a heavier focus on operations such as asset and mall management rather than greenfield development, Blokhuis told PropertyEU in an exclusive interview.

‘The times have changed,’ he noted. ‘The European shopping centre market is in the next phase of its development. For more than 30 years, Multi created value by developing new shopping centres across Europe. But development is no longer the main game. It’s now about creating value on the income side. We are being forced by market circumstances to reposition ourselves for the next phase in our development. The new company we are building is an asset manager. Multi may become a next Rodamco.’

Instead of greenfield development, the focus will be on buying existing assets and repositioning portfolios, Blokhuis added. ‘But there will still be some autonomous growth from the development pipeline. Development is not dead. We have just announced a €200 mln project in Gdansk for example and are also working on a few smaller projects in the Netherlands and Slovakia.’

At present Multi has a portfolio of 30 shopping centres valued at around €3.5 bn with another €1 bn in the pipeline for the coming three to five years. Multi projects account for the bulk – or €2.5 bn – of the existing portfolio with Blackstone’s King Street portfolio, which it built up in Poland and the Qubicon portfolio in Turkey in recent years, making up most of the remainder.’

Many of the pipeline projects revolve around extensions, for example the Forum centre in Trabsom in Turkey and Magnolia Park in Wroclaw in Poland. The Dutch portfolio is currently being screened and some projects may be scrapped, Blokhuis said. ‘A (re)development must add value. We don’t want to just lay down a beautiful monument, a shopping centre must have a role in an urban area. It’s no good to anybody if a shopping centre is only 70% leased.’

In that context, Multi is making an about-turn. While the focus in recent years has been on prestigious new developments that are dominant in their catchment areas, in future there will be more room for local centres anchored by supermarkets, Blokhuis said. ‘Local shopping centres where you can buy your daily needs provide a very stable income. Our portfolio will continue to concentrate on major centres in regional cities and inner-city developments like Antwerp and Rotterdam, but bread-and-butter convenience centres will become a bigger part. There will be a better mix.’

Another focus area is factory outlet centres, he added. ‘We are building an interesting portfolio in Italy.’

Blokhuis is betting on refurbishment and believes that there is enough potential in countries such as Germany and the Benelux to keep the company busy for another 30 to 40 years. ‘We have enough funds. Money is not an obstacle for Blackstone when there are opportunities for entrepreneurship and performance.’

Extrapolating from the results of PropertyEU’s latest annual survey of the European shopping centre industry in conjunction with ICSC, it is fair to assume that vast redevelopment potential exists in the markets in which Multi is active. While shopping centre pipeline projects are concentrated in Central and Eastern Europe, it is the mature Western European countries that lead the ranking of refurbishments including redevelopments and extensions.

The UK is by far the leader in this category with 1.6 million m2 or 18% of the total, followed by Germany and France. In total 8.9 million m2 or 240 existing shopping centres are in need of a refurbishment, redevelopment or extension, according to our survey.

The Croydon Partnership – a redevelopment of the London borough of Croydon being undertaken by Sydney-listed Westfield and UK REIT Hammerson – is a case in point. The £1 bn (€1.2 bn) project aims to transform Croydon town centre into a modern, 139,000 m2 retail, leisure and restaurant destination, together with a new public area, new car parking space and up to 600 new residential units, including affordable housing. Westfield and Hammerson say that this will provide the ‘kick start’ to Croydon’s much-needed regeneration and will attract new residents and visitors back to the town while delivering a safe destination for families.

Another major mixed-use scheme involving the redevelopment of an existing shopping centre is St James in Edinburgh. The €1 bn project is being developed under the umbrella of TIAA Henderson Real Estate’s UK retail Shopping Centre fund which was recently extended for another 10 years. With an estimated value of over £850 mln (€1.07 bn), the St James project will create 1 million sq ft (92,900 m2) of retail space, a luxury hotel and up to 250 new homes. TH Real Estate’s UK retail fund currently has a 100% stake in the project but is seeking partners to share the development costs.

On the European continent, Germany and France offer the biggest potential for refurbishment and Portuguese developer Sonae Sierra is still scouring the market for opportunities, the company’s CEO Fernando de Guedes Oliviera said. ‘We believe Germany is a huge market for refurbishment.’

Sonae Sierra’s home market Portugal on the other hand and its neighbour Spain are starting to dry up, however, he said. ‘These are quite mature markets. There are opportunities and we are working on them, but in terms of new development, I doubt we will be seeing much there.’ Indeed, the Portuguese retail developer and property services specialist sees greater potential for growth outside Europe and is currently eyeing a number of opportunities in new markets in South America, he added. ‘We are now looking at Colombia and hoping to announce our first investment there before the end of the year.’

Sonae Sierra is already active in Brazil and aims to grow its footprint there through its alliance with Alexander Otto, CEO of German retail developer ECE. Earlier this year, Otto acquired a 50% share of a joint venture with Sonae Sierra from US-based DDR Corp. The JV in turn owns 67% of the listed Sonae Sierra Brasil, one of the largest shopping centre companies in the country with 12 malls, mostly in São Paolo state. Its portfolio has more than 500,000 m2 of leasable area.

While Otto is setting his sights on potential markets outside Europe, ECE remains a formidable competitor in its home market, the other German-speaking countries and Central and Eastern Europe. In early October, the Hamburg-based developer opened its Milaneo shopping centre in Stuttgart, which it developed together with Vienna-based Strabag, six months ahead of schedule. The two partners have invested over €550 mln in the 43,000 m2 mall, which comprises 200 specialist stores and an underground parking garage. Ahead of its opening, Milaneo has been lauded with a gold pre-certificate by the G√erman Sustainable Building Council DGNB and the Mipim award for Best Futura Mega Project in 2013. Milaneo forms the heart of the new Europaviertel quarter in Stuttgart, together with the city library at Mailänder Platz which was completed in 2011. By summer 2015, a 165-room hotel, 415 apartments, and office areas covering 7,400 m2 will be built on the floors above the centre. Bayerische Hausbau is building the hotel and the offices.

Alexander Otto, CEO of ECE, described Milaneo as one of the largest and most complex projects in ECE’s 50-year history. Investor Hamburg Trust holds a 78% interest in the shopping centre (including the underground parking garage), with ECE/Otto Group holding the remainder. Elsewhere in Germany, ECE is working on the construction of a €145 mln project in the city of Neumünster near the ICE train station, Gänsemarkt and Großflecken. The scheme, which will cover an area of nearly 23,000 m2 on two levels as well as 950 parking spaces, is scheduled for completion in the autumn of 2015. ECE is also active in the field of refurbishment.

At Expo Real in October, the company revealed the new interior of the 26,000 m2 City Passage mall in Bielefeld in central Germany. The asset was bought by the ECE European Prime Shopping Centre Fund in 2011. The new design is intended to reflect the historical significance of linen to the area, while creating a modern space for 100 shops. ‘Having successfully taken over the management of the property, we will now focus on converting the shopping gallery into a state-of-the-art shopping world,’ Otto said.

The Hamburg-based company is also active in Poland where it has started the development of a new major shopping centre in the city of Bydgoszcz. The mall, dubbed Zielone Arkady, represents the largest project of ECE Polska to date and will involve an investment of around €150 mln. While Hammerson, Westfield and TIAA Henderson have cornered the UK market, ECE has seen Europe’s largest listed real estate company Unibail-Rodamco encroach upon its home turf following its takeover of developer Mfi. Earlier this year it acquired the remaining 49% stake it did not yet own in the Essen-based shopping centre operator from New York-based private equity firm Perella Weinberg Partners. It further strengthened its German platform by acquiring a 50% stake in the Centro mall in Oberhausen for €535 mln. The Paris-listed company is also a major force to contend with in its home market France alongside Klépierre.

Indeed, the French pair dominate their home market and have significant positions in Scandinavia as well as southern Europe. With low funding costs – Unibail-Rodamco recently raised €750 mln from a bond issue with a record low coupon of 1.3% – the French company is not about to fall down from its high peak anytime soon. Multi will have its work cut out for it in its bid to lay claim to a bigger share of the European retail pie.

Get the latest data and expert opinion on the key trends driving the European shopping centre sector. European Retail Atlas will be previewed at the MAPIC retail real estate fair in Cannes from 19-21 November.

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