Global ViewPoint | Shopping Centre Development

CBRE Global ViewPoint

June 2012

Author: Neville Moss, Head of EMEA Retail Research Contributors: Ronald Chan, Senior Manager Asia Research, Hong Kong and James Costello, Managing Director, Head of Research Investment Consulting, Americas

OVERVIEW Global shopping centre development continues apace, with unprecedented levels of construction and new openings taking place. 7.8 million sq m of new space opened in 2011 and a further 29.6 million sq m is under construction – equivalent to all the combined existing space in France, UK and Germany. Emerging markets are far more active than mature ones. In 2011, new centres opened in 63 (35%) of the 180 cities covered in the survey, of which 50 were in emerging markets. In contrast only five cites in western Europe saw the development of a new centre last year. Looking ahead, a similar theme is evident. Half (50%) of all space under construction is in China, with Asia accounting for 70% of all schemes currently being built. The development market is also highly active in parts of eastern Europe, the Middle East and Latin America. The shopping centre concept, once the preserve of the western world, is therefore becoming ubiquitous. Retailers seeking to grow their businesses in emerging markets have benefited significantly from the development of new centres, whilst 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.

INTRODUCTION CBRE has measured the level of shopping centre development in 180 of the world‟s major cities. The survey was based on new centres of over 20,000 sq m and excluded retail warehousing and factory outlet centres. The definition used in this analysis is set out in full in the back of this report. The purpose of this Viewpoint is twofold: • To identify the most active shopping centre development markets at city level, both in terms of 2011 completions and space currently under construction. • To assess the importance of new development in attracting cross border retailers. FULL OF EASTERN PROMISE China was by far the most active development market last year with four cities in the top five in terms of the amount of new space completed. Shenyang (8.1 million people) was the runaway leader. Six new centres totalling over one million sq metres opened there in 2011. In second place was Wuhan (9.8 million people) where 574,000 sq m of new space opened, also in six centres. The Most Active Shopping Centre Development Markets in 2011 (sq m completed)
Shenyang, China Wuhan, China Chengdu, China Guangzhou, China Istanbul, Turkey Kuala Lumpur, Malaysia Mumbai, India Ankara, Turkey Chongqing, China Bangalore, India Mexico City, Mexico London, UK Seoul, South Korea Osaka, Japan New Delhi, India St Petersburg, Russia Moscow, Russia Hanoi, Vietnam Tianjin, China Manila, Phillipines Beijing, China Sao Paulo, Brazil 0 500,000 1,000,000

June 2012

Cities with more than 100,000 sq m of new shopping centre space in 2011 Source: CBRE

© 2012, CBRE Ltd

© 2012, CBRE Ltd

new centres have been instrumental in attracting retailers to Dubai. and consequently absorption rates are also high. Development activity was high in all the BRIC countries (Brazil. Seoul (2) and Kharkov (1). Limited development in mature markets In Europe. with the completion of Westfield Stratford City..the first retail developments become less popular with both retailers and consumers. Nevertheless there are still opportunities for new developments. The rapid growth of shopping centre stock in the emerging submarkets of Tier 1 and Tier 2 cities. With shopping centre development at very low levels in mature markets. For a new brand entering a new Chinese city there is intense competition for prime space and securing the best site can sometimes take several years. However. Mexico City. And this was also the case in 2011. much of the pipeline is in emerging areas of major cities. and also in cities such as Kuala Lumpur. CBRE Ltd Moscow (2 schemes).. as retailers are increasingly targeting prime locations only... Thus. prime space in these markets. Kiev (1). in all Chinese cities demand for prime space typically outweighs supply. „high street‟ units refurbished to a high standard helped Sydney to attract four new international retailers in 2011. and Osaka where three centres opened. China – too much too quickly? Even though China‟s economic boom and growing middle class has led to a major increase in consumer spending. and not in the prime areas where international retailers want to locate. particularly for modern high quality shopping centres as department stores . Hanoi. many retailers that have a presence in the Tier 1 cities are now actively looking to expand elsewhere within the country. Of the top ten cities in terms of new retailer market entries. Istanbul and Ankara.. but no new shopping centres opened. New shopping centres play a key role in attracting international retailers to emerging countries and cities. new shopping centres were completed in just 15 out of the 96 cities covered in the survey. only three „mature‟ cities saw more than 100. six centres have been completed in recent years and another seven are under construction. particularly in an emerging market in the early stages of its evolution. principally because there is an historic lack of high quality. the rapid expansion of shopping centre space has in many cities outpaced consumer demand. For example. In total. . but it is not the only factor As emerging markets evolve new retailer entrants typically have more choice of quality product to choose from and will not necessarily seek out or indeed have access to a new centre. In recent years. Likewise there was virtually no new development in the mature shopping centre markets of North America and the Pacific region in 2011. and in the “smaller” markets (typically with populations of over 1 million people) has inevitably led to some instances of high vacancy.. this level of development has been sustained for a number of years and in many cities there is more to come. June 2012 . CROSS BORDER RETAILING AND NEW CENTRES New centres attract new retailers. However. international retailers already have a considerable presence in Shanghai and Beijing but penetration levels further down the retail hierarchy are more limited. suggesting that 2011 was a „blip‟ year during an extended period of development. Retailers are initially attracted to the trading opportunity for their brand in a new market... But accessing the right type of space can also be an issue in mature markets. India and China) in 2011. The retailers entering Kazakhstan last year took space in the centres that opened in 2009 and 2010.. on the back of infrastructure improvements and rising incomes. The anomaly was Kazakhstan where 18 new market entries were recorded in 2011. Prime space remains in short supply – even in China In China. as identified in CBRE‟s How Global is the Business of Retail? report.. 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.000 sq m of completions in 2011: Seoul with two very large schemes..Global ViewPoint | Shopping Centre Development Whilst the amount of new space built in China‟s Tier 1 and Tier 2 cities in 2011 was huge. Ho Chi Minh City (1). for example. Activity in other mature markets was also limited. due to a difficult consumer environment and a lack of development financing. This reflects not only the maturity of the shopping centre market in much of Europe but also the difficult economic environment. This was the case in Warsaw (6 new market entrants) where no new shopping centres opened in 2011. smaller scale development and extensions to existing space are facilitating retailers‟ ability to enter some markets. Russia.. but the ability to access the right type of space is equally important to a retailers‟ success. London. Whilst there is a significant pipeline of shopping centre stock coming through. Development has been fuelled by a lax planning regime. Outside of Russia and Turkey only Ukraine (Kiev and Kharkov) and Italy (Milan and Turin) saw the completion of more than one new centre. China and India. new shopping centres were completed in five of these: Page 2 © 2012.

China Shenzhen. Russia Zaragoza. Shopping Centre Space Under Construction (sq m) Tianjin. retailers such as Walmart. such as Brazil and Mexico. Tesco and Carrefour are still awaiting final approval from the government. New Delhi and Sao Paolo – five countries in three regions. Hong Kong Almaty. but it did top the rankings in 2010 with new shopping centres playing a key role. Greece Bucharest. In November 2011. local retail chains are expected to expand their networks into much of this new stock. India was not among the top countries for new entrants in 2011 in spite of an active development market. Bulgaria Mumbai. Russia Seoul. Hanoi. China Shenyang. Turkey St Petersburg. the most active markets are Abu Dhabi. Foreign Direct Investment (FDI) restrictions have made India less appealing to others. Belgium Winnipeg. India Dubai. China Abu Dhabi. CHINA HAS THE LARGEST PIPELINE Chinese cities continue to dominate development activity. only Paris and Moscow have more existing shopping centre space. China New Delhi.6% but this ranges from below 4% in its core submarket (Chunxi Rd and Yanshikou) to over 40% in Xinnan Tiandi – an emerging submarket. UAE Paris. CBRE Ltd . India Hong Kong. China Rio De Janerio. Brazil Hangzhou. Thailand Dalian. Russia Qingdao.000 sq m of new shopping centre space under construction as at January 2012 Source: CBRE June 2012 Page 3 © 2012.45 million sq m is currently under construction. Kuala Lumpur (Klang Valley). China Chengdu. Even though many international retailers have built up a presence in India (25% of the retailers in CBRE‟s How Global is the Business of Retail? survey are present there). South Korea Kiev. Russia Bangkok.000 2. South Africa Hyderabad. Ukraine Chennai. Canada Berlin. in Europe. China Guangzhou. India Sao Paulo. Malaysia Xi'an. China Bangalore. China Hanoi.000. Singapore Samara. The development pipelines are equally impressive in Shenyang (2. India Sofia. Mexico Brussels. This is now changing. China Nanjing. In time. the average vacancy rate is 11. Vietnam Moscow. Spain 0 1. And Chinese cities account for exactly half of all the shopping centre space under construction in the 180 cities analysed. the government announced that FDI of up to 51% would be permitted in multi-brand retail. China Ho Chi Minh City. New centres typically open at least 85% let with little difference between the best and secondary centres. China Shanghai. bringing down vacancy levels. Germany Athens. China Kuala Lumpur. In other rapidly growing markets. Consequently. Romania Singapore. Brazil Istanbul. To put that into perspective. Turkey Guadalajara. vacancy is generally very low because of strong occupier demand and a lack of modern retail space. Activity levels are high in many emerging markets Outside of China. Seven out of the top 10 most active development markets globally are in China.89 million sq m). Kazakhstan Mexico City. Heading the list is Tianjin where 2. China Chongqing. India Ankara. although the implementation of the proposal has been delayed due to political pressures and protests by domestic retailers. The easing of FDI restrictions together with a strong shopping centre pipeline should encourage a new wave of retailer entrants over coming years.17 million sq m) and Chengdu (1. Mexico Nizhny Novgorod.000.Global ViewPoint | Shopping Centre Development For example. in Chengdu. UAE Wuhan. France Johannesburg. Vietnam Beijing.000 Cities with more than 100.

Argentina and Panama. William Taubman. In North America. development activity is forecast to increase as the economy recovers. This suggests that redevelopment of existing retail space. most notably in Brussels where shopping centres have historically been in short supply due to a restrictive planning regime and in Paris where two new centres will fill some of the few remaining retail gaps in the capital. Finally. The maturity of the retail sector in western Europe and North America has resulted in much lower levels of development.Global ViewPoint | Shopping Centre Development In the Middle East. new retail space in emerging markets. lifestyle centres.there are still significant opportunities in some locations. but not to the levels previously seen. shopping centres have been defined as purpose-built and centrally managed schemes with a gross lettable area of over 20. Retail warehousing and factory outlet centres have been excluded.000 sq m. the analysis included regional malls. The analysis includes only new centres and major extensions (20. and power centres and also includes all extensions to existing schemes (albeit there was very little new space under construction). In Europe. ecommerce will soon be shaping the demand for new retail space. But with retailers and shoppers increasingly gravitating towards the biggest and best centres. India is the second most active market. with for example. Developers are currently building 32 shopping centres in five cities. It excludes department stores which lease space as tenants within larger shopping centres. new shopping centre completions are expected to pick up as economic conditions improve . Equally. one in Casablanca and one in Rabat. Kiev. with new centres also under construction in Mexico.7 million sq m to the total stock. Brazil is leading the development in new shopping centres in Latin America. type and in the location that retailers require remain in short supply. We shall return to this theme in a future Viewpoint. which will add 1. China has led the way in recent years and with huge opportunities still existing in its Tier 2 cities. What impact will it have 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 multichannel platform? In emerging markets. the analysis includes retail shopping malls and standalone department stores over 20. shiny new shopping centres are likely to hold the attention of shoppers for some time to come. with Istanbul and St Petersburg forecast to be the most active in coming years. Mexico. it is only the top 150 or so centres that are attracting new investment. particularly in the BRIC markets has led to an upsurge in new development which is also evident in Turkey. but the rapid evolution in online retailing suggests that even here. two new centres currently under construction in Morocco. SHOPPING CENTRE DEFINITION For the purposes of this analysis. Growing middle class populations. In the US. In Asia. development activity is restricted largely to the emerging markets of Turkey and Russia.000 sq m and above) to existing schemes. In Africa. Too much retail space is one reason why 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. we cannot ignore the rapid growth in online retailing. whether in shopping centres or high street locations will remain the focus of development activity over coming years. only South Africa has a highly developed shopping centre industry. Modern units of the size. But this is starting to change. Nizhny Novogorod. June 2012 Page 4 © 2012. This trend is expected to continue and is helping to underpin the development of high quality. it is likely to remain the most active development market over coming years. Almaty. CBRE Ltd . CONCLUSION Global shopping centre development continues apace. Moscow.000 sq m. Malaysia and Vietnam amongst others. with unprecedented levels of construction and new openings taking place. COO of Taubman Centres recently estimated that 50% of investment spending goes on the just the top 10% of shopping centres. Whilst every effort was made to provide data on a consistent basis there are some differences by country and region. Dubai has been the focus for shopping centre development. but it has also forced retailers from these markets to cross borders in order to grow their businesses. redevelopment and extensions to existing schemes have dominated new development for many years. with 10 new centres completed in 2005-2009 but activity is now shifting towards Abu Dhabi with almost one million sq metres under construction in 9 schemes. But activity is heavily focused on emerging markets. As with other mature markets. Ankara and Samara also feature in the Top 50 most active global cities. There is also a handful of new centres under construction in mature markets.

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