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Development in Budapest
Etele Plaza by Futureal.
THE RETURN OF RETAIL DEVELOPMENT IN BUDAPEST
Although consumer demand in Hungary is continuing to rise, with around 7% year-on-year growth in per capita retail sales for 2018, the shopping center stock in Budapest and across Hungary remains low by European standards with no new shopping center completions since 2013.
By Gary J. Morrell
The hiatus in mall development has been due to concerns over the economy and therefore spending power and the possible longerterm impact of e-commerce on brick and mortar retail, with an eye on Western European retail markets. However, development is finally starting to take off again with several pipeline projects at different stages of the planning and construction process, although the next delivery is not scheduled until late 2020.
Further, a number of investors have concluded shopping center acquisitions with the aim of redeveloping and repositioning the asset in the market. Developers and retail center owners are very conscious of the need for the design and retail offering of centers to meet changing consumer demand.
On the demand side, although average per capita purchasing power for Hungary remains low by both EU and Central European standards, real estate consultancy CBRE registered 15 new retail brands entering the Hungarian market in 2018; these primarily targeted landmark shopping centers over
high street locations. In Budapest, both leading shopping centers and main streets are performing exceptionally well, secondary centers and locations less so.
“There are two major shopping center developments in the pipeline for Budapest: Etele Plaza by Futureal
and Bogdáni by ECE,” comments Viktória Szabó, partner and head of retail agency at Cushman & Wakefield Hungary.
“The concepts of the newly planned malls have changed to better serve changed customer demand. For the same reason, a number of existing major shopping malls are also under concept change and re-modelling. The main targets are to increase the food offer within the malls, and secure new, interesting leisure elements. Developers are designing future schemes to have more entertainment and F&B elements. Unique leisure elements are design targets, in order to differentiate them from
other shopping centers, attract more customers and increase dwell time,” Szabó adds. of several landmark shopping centers in Budapest, such as Arena Mall and Campona,” CBRE says.
CBRE put the average vacancy rate in Budapest shopping centers at 1.5%, a remarkably low figure driven by the fact that the city has not seen any shopping center deliveries in recent years.
INCREASING ACTIVITY “After years of limited pipeline volumes, we see increasing development activity on the retail market throughout the country. The overall active monitored pipeline currently adds up to circa 140,000 sqm, excluding the planned extensions
The planned new projects and ongoing refurbishments are not expected to exert downward pressure on rents. CBRE put rents in tier one shopping centers at EUR 105 per sqm per month and tier two centers at EUR 50 per sqm per month. Prime high street rents stand at EUR 100 per sqm per month for a typical 100 sqm unit in a prime Budapest high street.
The first, long awaited delivery in Budapest will be the 54,000 sqm Etele Plaza by the Hungarian developer Futureal, with a scheduled handover of
the third quarter of 2020, ground having been broken on the development last summer. Etele Plaza, co-designed by the Hungarian Paulinyi-Reith & Partners and Dyer Studio Inc. of Portland, Oregon, will include around 180 retail outlets located at a transport hub at the Kelenföld railway station, Metro line 4 and the approach section of the M1-M7 motorways. The hub is used by 165,000 people daily, according to Futureal.
The company has concluded a EUR 150 million financing agreement for the project with UniCredit Bank and Erste Group for the development. The mixed-use project also includes the 65,000 sqm Budapest One office park, making this essentially the second
Mammut Shopping Center.
“In general, retail will always be a good investment option, as it addresses the fundamental needs of people. […] Moreover, postindustrial economies in the CEE region are growing at a faster rate, with the retail sector being the one which benefits most from both industrial and urban development. The retail sector is still performing well in most of countries, and as long as the location of the asset is good and it is well maintained, such investments should be a safe option.”
brownfield development by Futureal after its Corvin Promenade urban regeneration project, which delivered a 44,000 sqm shopping center and 10,000 sqm of street retail.
“We see the project as the next generation of shopping center as part of a brownfield regeneration project on a similar model to Corvin Promenade. However, the design concept and offer reflects the changing expectations of consumers and retailers in the time period between the two projects,” comments Tibor Tatár, CEO of Futureal.
JLL put total modern shopping center stock in Budapest at 722,000 sqm, which is low by European standards, as this represents a total shopping center density of 433 sqm per 1,000 inhabitants.
MAIN MALLS The leading centers are generally considered to be the 68,000 sqm Árkád center, the 66,000 sqm Arena Mall (formerly Arena Plaza), the 58,000 sqm Mammut, the 47,000 sqm Allee, the 45,000 sqm WestEnd City Center and the 30,000 sqm MOM center. All have waiting lists for tenants and are therefore able to command the highest rents.
With regard to supply, Éva Sréter, head of retail at JLL Hungary, argues that the market has reached a relatively high density level, and therefore refurbishment instead of
pure development is becoming more relevant. She cites as examples the refurbishment of Shopmark by Diófa Asset Management and the extensive redevelopment of Campona by CPI Property Group.
The next pipeline shopping center project is the 53,000 sqm Bogdáni shopping center by the German developer ECE, located in the Óbuda area of Budapest, again at a transport hub. ECE is currently waiting for new permits on the development, its original ones having expired while the project was on hold. In contrast to Etele Plaza, the Bogdáni location has no obvious competitors, according to Sréter.
ECE has developed five shopping centers across Hungary: Budapest; Győr; Pécs; Debrecen; and Szeged. In the capital, ECE’s 68,000 sqm Árkád center, currently the largest shopping center in Hungary, was originally completed in 2002 but extended and renovated in
2013, making it the last major shopping center delivery in Budapest.
Another major planned project is Central Park by the Hungarian developer Granit Polus, located in Districts VI and XIII. According to the development plans, the mixed-use development will consist of retail, office and residential elements. Negotiations with the planning authorities are ongoing for the scheme.
Another long-time planned Budapest project is Mundo owned by the Polish Echo Investment. The development plot in Zugló (District XIV) has the required planning approvals needed for work to begin, although there is no firm date for delivery.
“Shopping centers are challenged by online retail that drives urban logistics and diminishes the role of traditional concepts. We are witnessing a food retail revolution with the new food
Fashion Street.
hall concepts and the ‘gamification’ of the food and beverage sector,” says Jan Kotrbáček, head of CEE retail at Cushman & Wakefield.
MIXED-USE FUTURE “There are currently two major trends in the shopping center business: brick to drive click, as the shopping center is accompanied by online retail and ultimate experience centers, where consumers can get a unique experience. New developments are going to be mainly mixed-use urban projects combining retail, leisure, offices, residential and hotel use. Also, there is still a potential for extralarge destination shopping centers including all elements of a small city center, including entertainment,” Kotrbáček explains.
“Shopping centers will have to change their position to become closer to the local community by creating an authentic environment and hiring
local people. Competition will extend from the numbers (i.e. sqm and the number of stores) to the experience. In this regard, architecture will play an important role, because retailers and brands will need to present their product in an exceptional environment. Subsequently, brands will prefer ‘statement’ and ‘reference’ shops to be recognized and identified with on the market. They will try to appeal to new customer trends, such as ecoawareness and guilt-free consumption. This is going to be a difficult situation for shopping centers, which have so far been associated with rather the opposite perception,” he adds.
The South African investor, NEPI Rockcastle acquired the 66,000 sqm Arena Plaza (now the Arena Mall) in 2017. This represented the first entry by the prolific CEE investor and developer into the Hungarian market and the company has since then also purchased a 22-hectare development plot adjacent to Arena,
suggesting it has plans to extend the mall. The company certainly has a policy of redeveloping and extending its acquisitions as a long-term investor and owner. In a further retail acquisition, NEPI Rockcastle also purchased the Mammut shopping center almost a year later in September 2018.
In another acquisition and redevelopment, Diófa Asset Management reopened the rebranded
Shopmark shopping center in District XIX in late October 2018 after an extensive refurbishment and reconstruction. Elsewhere, the CPI Property Group is redeveloping the Campona shopping center in the outer District XXII and will extend it to a GLA of 70,000 sqm.
“Although the absolute volume of retail domestic completions still lags behind the levels in other core-CEE countries, some of the major Tier One
shopping centers will be undergoing significant refurbishments, creating more ground for tenants to expand to several locations within the capital. This follows the major repositioning of several tier two Budapest centers,” CBRE noted.
GOOD INVESTMENT Retail is generally regarded as a good investment despite the lack of assets and concerns over the possible impact of e-commerce on the market.
“In general, retail will always be a good investment option, as it addresses the fundamental needs of people. With the challenging situation on the market, the concept of a shopping center is very flexible and
can adapt to changing trends,” says Cushman & Wakefield’s Kotrbáček.
“The competitive positioning of a shopping mall can be changed by re-conception, re-design and new management techniques to provide unique opportunities for value-add investments. Moreover, post-industrial economies in the CEE region are growing at a faster rate, with the retail sector being the one which benefits most from both industrial and urban development. The retail sector is still performing well in most of countries, and as long as the location of the asset is good and it is well maintained, such investments should be a safe option,” he adds.
From a positive development perspective there has been significant development activity in prime high street retail in central Budapest.
“Supply in the downtown area is continuously growing, although not primarily with fashion and related products, but rather the F&B sector. All formats of food and beverage type operations are expanding from the traditional fast food concept up to the fine dining restaurants. Due to this trend, the overall downtown area is expanding, although development is expected to be concentrated on the following three main streets: Váci utca, Fashion Street and Andrássy út,” said Szabó.
Andrássy út, viewed from Hősök tere.
The threat of e-commerce is currently not seen as being as strong as is the case in Western Europe, as shopping center stock is much lower in Hungary.
“We are experiencing a more moderate retail expansion in most European markets in general. This is a result of the global changes experienced within the industry. The strengthening of e-commerce has resulted in an increased need for new, alternative concepts in shopping centers, targeting the renewal of the overall shopping experience. The future schemes are designed in the light of the growth of e-commerce,” Szabó concludes.
