Cityleaders

Content partner: Multi Corporation

A MOSAIC OF MARKETS - CHANGING PATTERNS IN THE EUROPEAN RETAIL SECTOR

Dr Herman J Kok MRE

Multi Development

A key activity of real estate developers, investors and retailers alike is the search for new business opportunities, such as opening stores, developing new space, redeveloping existing spaces and acquiring properties for investment. This search is conducted in a challenging environment: on the one hand, Europe and the rest of the world are becoming increasingly inter-connected, with an growing number of cities and regions within reach. Yet, at the same time, growth is slowing throughout Europe and elsewhere, making the task to find cities and regions with potential more challenging.

The current economic situation determines many decisions but the climate could change for the better. The growth of online retail and its impact on markets throughout Europe will, however, will have a more lasting impact on the retail structure, with the nature of stores changing and the focus on destinations and proximities strengthening.

Places to buy are set to become places to meet and connect, where retail will be accompanied by other functions. The importance of public spaces as places where people meet and share experiences will further increase. This means that monitoring cities and regions, and assessing the main trends in economic activity, employment and demographics will be even more crucial than in the past.

This is because the trend of differentiation between growing core cities and regions and non-core areas is becoming more relevant. Large, well-connected cities with historic relevance and a climate of business and scientific innovation will top the league.

2012 saw the Euro debt crisis erupt once more and 2013 is set to be another challenging year for the retail and shopping centre industry. The average GDP growth picture in Europe worsened over the course of 2012 and most national governments have little or no budget to support the economy and boost consumption. Austerity measures are being increasingly implemented to help reduce budget deficits and public debt levels.    

Furthermore, deleveraging has become increasingly common amongst households and companies alike. Despite this, the picture in Europe is diverse and varies between different countries.

Regional variations
The troubles in southern Europe have continued, with austerity measures further diminishing economic vitality. Greece is increasingly falling into anarchy while Spain and Portugal have two more years of stagnation ahead. At the bottom of this cycle, retail sales will be 25-30% lower than before. Trade conditions and the potential differences between core cities and non-core areas are rapidly widening. Good locations in core markets and project with strong fundamentals are becoming good opportunities, with investment activity currently at a low. 

In the core of Europe, Germany is enjoying comparative prosperity, relatively low levels of public and private debt, economic growth and robust consumption. Ambitions to revitalise city and town centres are supported by domestic and foreign retailer interest for revitalised inner-city locations.

With market parameters relatively strong in Germany, the retail industry is in a good position to absorb the growing impact of online retailers and is able to adapt to new market conditions with attractive, vibrant and well managed inner-city destinations. City-regions like Munich, Frankfurt, Dusseldorf, Cologne and Hamburg are among the key growth nodes in Europe, while Berlin is an innovative hotspot for retail and culture. Investor interest is strong and asset prices are high.

The main risk in Germany is going for second-best sites, where demand is competitive and targets are challenging. These second-best sites are vulnerable to economic downturns and more likely to be affected by the impact of online retailers.

Central Europe - particularly Poland, Slovakia, and Czech Republic - has been survived the crisis so far. Well-managed debt levels, ongoing catch-up demand and the historic connection with the strong German economy are among the reasons why. In fact, Poland was the only country in Europe to escape recession in 2009.

The fact that some investors have started to convince the markets that countries like Poland and Czech Republic are core is a strong indicator that the European economic and urban system is re-orienting from a north-south axis to a west-east axis. Cities such as Prague and Warsaw, and also Krakow, Bratislava and Gdansk, are returning to their pre-Cold War positions in the European urban system. 

Following a development boom of suburban shopping centers in the period between 1995 and 2005, inner-city locations in eastern Europe have attracted significant developer and investor interest in recent years. As with southern and western Europe, large cities with diverse economies, a strong scientific base, and historic and cultural relevance are likely to be among the growth regions.

As average demographics in central Europe are either stagnant or in decline, there will be further differentiation between core cities and other areas, with regions around the main cities like Warsaw, Prague, Budapest, Gdansk and Brno growing and peripheral regions declining. Also, particularly in Poland, there is still a wide range of mid-size cities with populations between 50,000 and 100,000 which lack modern local retail supply in terms of convenient meeting and shopping places.

The growth engine in the European retail sector is mainly in the eastern periphery, with Turkey and Russia expected to be the main markets in the medium-term. Turkey is unique in the sense that it has a simultaneous process of demographic growth, economic growth and ongoing urbanisation. The growth differentiation between core and non-core regions in Turkey is much less pronounced in the sense that most of the regional centers in Turkey show significant population growth and activity growth.

In the European context, Turkey has been a major growth story over the past 10 years. Besides the growth of larger cities like Istanbul and Ankara, the growth in regional centers in Anatolia, including the so called ‘Anatolian Tigers’, has been phenomenal. This includes both second-tier cities such as Kayseri, Adana and Gaziantep, and also third-tier cities like Corum and Elazig. This growth has been accompanied by the rapidly growing importance of the middle class, enlarging the market significantly in terms of locations and cities.

The situation in Russia and Ukraine is different. Russia’s growth stems from earnings in the commodity sector. Over the past 20 years, Russia suffered from population decline. Today, the population has started growing again, albeit at a low pace. Retail trade and shopping center development used to be concentrated mainly in the major cities, especially Moscow, but are now gradually spreading into second-tier and even third-tier cities. Though Ukraine continues to suffer from population decline, the largest cities, including Kyiv, Lviv, and Kharkov, are all growing and offer potential.

A patchwork of markets
Europe continues to be a patchwork of markets, not only classified by countries but also by cities and regions. With average growth rates subdued or negative in many countries, finding chances and opportunities becomes more critical.

On the other hand, with retailers becoming more and more international, Europe will increasingly become a market of cities and regions, with marked differences in economic and demographic dynamics, and also legal issues, planning policies and real estate opportunities.

For cross-border operators, understanding the dynamics of different cities and regions is becoming more important. City Leaders is a good tool to better understand dynamics on city level.

ABOUT MULTI CORPORATION

Multi Corporation is a privately-held commercial developer of inner-city retail space in Europe and Turkey. Multi develops and manages large-scale mixed-use shopping centres, inner-city regeneration projects and offices that are innovative and sustainable. Based in Gouda, The Netherlands, the retail specialist is active in 14 European countries spanning from Portugal to Turkey and Ukraine.

Sustainability is a vital part of Multi’s DNA. Multi has committed, over the coming years, to further reduce its direct and indirect CO²- emissions, to increase use of renewable energy, optimise use of materials, stimulate the use of public transport, along with further reducing waste and water consumption.

Multi uses its design group, T+T Design, for all urban development and architectural concepts, and has regularly received awards for the quality and innovative design of its projects.

In 2011, Multi boasted three finalists in the International Council of Shopping Centers Europe’s 2012 Awards, with Vleuterweide in Utrecht nominated in the category of small shopping centres, Marmara Forum in Istanbul nominated in the category of very large shopping centres and Forum Sintra in Portugal for the Best Refurbished and Expanded Retail Development.

LEGEND OF THE MULTI CHART

Acknowledgements
The data about inhabitants in this publications are compiled by Multi Knowledge Centre, derived from national statistical offices and various other sources. (if there is no chart of Multi in a city profile, the data is compiled by PropertyEU Research).

Definitions

City
The number of inhabitants within the city.

Agglo
The number of inhabitants in the wider area of a city (agglomeration) that is being served by a city.

Region
In most cases the province (Netherlands, Belgium, Italy, Spain) or department (France) or Nuts2 region (Germany, UK) in which a city is located.

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