European shopping centre development completions in the first six months of 2016 totalled 1.3 million sqm with a further 9.4 million sqm of new retail space under construction, according to the latest research from CBRE.
The amount of new shopping centre space completed across Europe declined in H1 2016 by 4 percent year-on-year to 1.30 million sqm, with construction levels for new schemes also seeing a fall of 21 percent year-on-year in 2016. However, shopping centre extensions under construction made up 21 percent of all new developments in the first half of 2016, an increase of approximately 50 percent year-on-year.
Shopping centre development activity has largely remained concentrated in Eastern European markets, with Russia accounting for 2.64 million sqm (28 percent) of total space under construction followed by Turkey with 2.22 million sqm (14 percent) of completed schemes in the first half of 2016. In Turkey, no new developments were announced in Istanbul due to the level of market saturation, but redevelopments may potentially increase.
The UK shopping centre pipeline of space under construction has increased to 441,400 sqm, a 75 percent increase on H1 2015, half of which are extensions on existing centres, notably the Westfield London Shopping Centre extension and the new Victoria Gate Shopping Centre in Leeds. Approximately 28 developments are expected to complete by the end of 2017. The UK’s decision to leave the European Union may result in a reduction in the number of future shopping centre developments due to a drop in consumer confidence and changes to regulations affecting property; but anything currently under construction is likely to still continue as planned with retailer demand for space remaining strong. The value of the Pound relative to other currencies such as the Dollar and Euro is also likely to make UK investment opportunities particularly attractive to overseas investors.
In the Ukraine there is 603,000 sqm of space currently under construction, which is 41 percent of the existing stock. The high pipeline volume, notably in Kyiv, is due to an improvement of economic fundamentals after an economic downturn in 2014 and 2015 that halted construction. Poland has a total of 524,000 sqm of new space under construction, in Warsaw there are still underdeveloped areas. In Poland a new law on retail sales tax may be introduced in September 2016, which may decrease profitably for the retail sector and lead to consolidation.
In the Nordics, Finland has the largest pipeline of space under construction, approximately 465,000 sqm, 22 percent of existing space.
In Western Europe extensions and refurbishments to existing schemes comprise around a quarter of total construction due to lack of supply. France has 440,700 sqm, Italy has 425,700 sqm and Germany currently has 126,800 sqm.
Andrew Phipps, Head of UK and EMEA Retail Research, said: “The level of shopping centre completions and space in emerging markets such as Turkey and Russia have seen a slowdown in the first half of 2016, especially in Russia where development levels had peaked in 2014 and 2015, due to investor demand from oil revenue. However, we are seeing a trend towards extensions and refurbishments to existing centres, in particular in the UK, which will account for over 20 percent of new shopping centre completions in the next few years.”
Michael Rogozhin, Managing Director of Retail department CBRE in Russia, commented: “Significant pipeline of new shopping centres in Russia can be explained by low retail penetration level in Russia which amounts to 146 sqm per 1,000 inhabitants at the moment. Highest retail penetration among largest regional cities (more than 1 million inhabitants each) have Yekaterinburg, Samara and Nizhniy Novgorod – close to 500 sqm of retail per 1,000 inhabitants. Krasnodar is the leading market among cities with population less than 1mn inhabitants and has highest retail penetration in Russia – 611 sqm of retail space per 1,000 inhabitants (even including Krasnodar metro area). Another reason of significant construction pipeline is long construction period of shopping centres. Delivery of 30 percent of 2016 projects in Moscow was rescheduled from 2015. Same tendency is observed in regional markets.”
Marina Malakhatko, Director, Moscow Retail Department CBRE in Russia, commented: “The shopping centres penetration in Moscow is much more higher than in the regions and will reach 458 sqm per 1,000 inhabitants by the end of 2016. But it is lower compared to the majority of the European capitals, and this is the factor of development stimulation. However, the jumping of bank rate in 2014 immobilized development and frozen a lot of projects. Recovery of quality retail development in 2016 occurred due to decrease of the refinancing rate to 10.5 percent, which brought down the project debt obligation.”
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