OUTLOOK RETAIL: Europe needs different retail square metres, not more

Redevelopment and refurbishment remain a key theme for Europe's retail real estate sector, according to Jaap Gillis, CEO Bouwfonds Investment Management.

‘The strong growth of the past is finished for most parts of Europe,' he told PropertyEU's Retail Outlook Investment Briefing at Mapic in Cannes in late November. 'We need to transfer square metres of shopping centre space to other functions. We need different square metres, not more.'

Landlords need to recycle their centres to integrate aspects related to health and well-being and to cater to individually oriented consumers, he added. 'For younger generations today everything is so fast moving and they quickly become dissatisfied when things get dull. Some shopping centres are responding just like machines, but they need to adapt to individual customer needs. They need to recycle and refurbish and bring in things that make people feel good.’

In that context, investors and landlords need to pay attention to emerging trends among new generations of shoppers, Gillis said. ‘Younger generations are more interested in the circular economy, they like to reuse things and are conscious that we need to waste less than in the past. They are also looking more at keeping in shape, general well-being and health, and these things need to be brought into existing shopping centres.’

No simple solutions
New developments like 3D printing offer opportunities for a more customised approach, but there are no simple solutions, he warned. ‘In some cases, big is beautiful but in other cases a more individual approach, for example, with niche retailers is better.’

Niche retailers can add variety to a shopping centre, but landlords of bigger centres are not always keen to have them, he conceded. ‘It is challenging to get a small company with a nice assortment that can also provide rent security. It’s more difficult to exploit those companies in big expensive malls. You will find them but not on the main street. Those sort of players tend to go to ‘B’ locations.’

However, there are no hard and fast rules, Gillis said. Pointing to the example of Dutch electronics store Cool Blue, he noted that new retailers are emerging that are not following classical retail rules by going to the high streets or the biggest shopping centres. ‘Cool Blue has put its money on locations in the periphery and it is now doing better than some of the better known brands.’

What investors and landlords need to realise is the importance of remaining alert, Gillis said. ‘Don’t fall asleep, the market is changing every day.’

Mixed functions

Herman Kok, international director of research at Multi Corporation, sees a growing role for food & beverage as well as social and cultural facilities. ‘A shopping centre has become a mixture of a meeting place for socialisation and consumption. It often serves as the heart of the community with a combination of retail, social services and food and beverage facilities. That is something that asset managers now understand and which they are using to promote the identity factor.’

Developers need to work in a different relationship with investors, he added. 'I think we will see an increasing mixture of functions, for example non-food retail, clinics or medical services in traditional convenience locations. We’re seeing an increase in shopping centres that are destination or convenience centres. Centres that do not fit into one of those two categories may find themselves in a phase of decline.’

Commenting on the sustained appetite for retail real estate, Kok said the strong competition was pushing investors further up the risk curve. ‘I think we will increasingly see consideration for secondary assets that need to be fixed. The development pipeline overall is increasing again, but the overwhelming majority of new projects involves redevelopment and extensions.'