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SHOPPING CENTRE DEVELOPMENT REPORT EUROPE April 2009

A CUSHMAN & WAKEFIELD RESEARCH PUBLICATION

OVERVIEW 2008 was another record year for shopping centre development in Europe, with just over nine million sq.m of new schemes and extensions added to the market. Whilst development activity in the second half of 2008 did not match forecasts made earlier in the year, the European shopping centre development market remained very active with the completion of around five million sq.m. Overall, 2008 saw the opening of 310 new schemes across Europe, representing 82% of total new space, with refurbishments and extensions accounting for the remainder. Total shopping centre GLA now stands just under 120.5 million sq.m across Europe. Expectations for 2009 have meanwhile been sharply reduced as the financial crisis and global recession have impacted on demand, funding and developer confidence. As a result the pipeline for the next two years has reduced considerably, with the expected pipeline for 2009 down by 40% on forecasts made last July for example. The slowdown will be evident across Europe, but with emerging markets particularly affected. Russia, Ukraine and to a lesser extent Turkey will all be notably impacted. Whereas 12 months ago these three countries accounted for 58% of the total pipeline, this has now been reduced to just 22%.

MARKET SIZE Russia has fallen to second place in the pipeline ‘league table’ as development activity has slowed considerably. A large number of pipeline projects have been put on hold due to the deteriorating financial and economic environment. Unlike most Western European markets, some schemes where construction is underway are also being put on hold. Whilst it is hard to estimate which projects will actually be finished, approximately one million sq.m should be completed in 2009, followed by a much lower 400,000sq.m in 2010. Another former development hotspot, Ukraine, is facing an even bigger slowdown with only around 500,000sq.m expected to be completed in the next two years. Nevertheless, shopping centre development in Europe will not come to a complete halt, with six countries still recording a two-year pipeline of more than one million sq.m. Some of the emerging countries in Eastern Europe seem to be less affected. Romania and Bulgaria for example still have sizeable pipeline figures. Whilst in these countries the pipeline has also fallen somewhat compared with forecasts of six months ago, they should nonetheless see a considerable amount of space being added to the market. In particular in Bulgaria there continues to be a lack of high quality shopping centre space. However, the 660,000sq.m currently under construction represents a 450% increase in provision and some schemes may experience difficulties attracting tenants due to the combination of the large pipeline and the economic slowdown. In Western Europe, France and Italy lead the development pipeline. In France the focus seems to be shifting more towards extending and redeveloping existing shopping centres, as this accounts for roughly 23% of the total 2009-10 pipeline. Italy will continue to see strong development activity as it has done for the last five years. In recent years the high development levels were mainly due to the completion of large scale regional schemes. However, 2009 and 2010 will see the completion of a large number of small to medium sized schemes in secondary, cities with the average scheme size just over 22,000sq.m.

1

European Shopping Centre Pipeline (1,000sq.m) Turkey Russia France Poland Italy Spain Romania Germany Bulgaria Netherlands Portugal CzechRepublic UK Slovakia Ukraine Austria Ireland Sweden Croatia Hungary Serbia Slovenia Switzerland Belgium Greece Denmark Lithuania Latvia Luxembourg Finland Norway Bosnia&Herz Estonia Malta

0

400

800

1,200

1,600

2,000

Major Schemes in the Pipeline Country Turkey

City Istanbul

Russia

Moscow

Turkey Russia

Istanbul Moscow

Russia

Scheme name Forum Istanbul

GLA (sq.m) 172,000

Year 2010

170,000

2009

155,000 135,779

2010 2010

Moscow

Golden Babylon Rostokino Carrefour Abramtsevo AuchanNovoukhtomsko

134,000

2010

Ukraine Russia Spain

Dnipropetrov Moscow Zaragoza

Karavan Kashirsky Mall Puerto Venecia

125,842 124,000 123,475

2010 2010 2010

Portugal

Amadora

Dolce Vita Tejo

122,000

2009

Turkey Spain Bulgaria

Antalya Valencia Sofia

Forum Antalya Neutopia Danaos Mall

116,000 112,000 110,000

2009 2010 2010

Shopping Centre Definition Cushman & Wakefield define a shopping centre as a centrally managed, purpose built facility with a Gross Lettable Area of over 5,000m² and comprising 10+ retail units. Factory Outlets and Retail Parks are excluded. All tables are based on information from Cushman & Wakefield’s in-house European Shopping Centre Database.


SHOPPING CENTRE DEVELOPMENT REPORT EUROPE APRIL 2009

OVERVIEW OF DEVELOPMENT IN 2008 2008 saw a record level of 9.1 million sq.m of shopping centre floorspace added to the market, representing an 8% rise in provision. Total shopping centre GLA across Europe rose to 120.5 million sq.m. Approximately 1.6 million sq.m of extensions and redevelopments were completed last year. Extensions accounted for a record 18% of total development which is mainly due to the high level of refurbishment and in-town regeneration taking place in mature markets such as the Nordics, France, Austria, the UK and the Netherlands. Average shopping centre provision per 1,000 inhabitants across the EU-27 now stands at 206.4sq.m. Whilst countries such as Russia, Ukraine, Turkey and Romania are seeing record levels of development, they remain largely under-developed compared to the European average. New space has so far been easily absorbed by the market, but the onset of the financial crisis and economic slowdown may lead to a short-term surplus of space in some locations.

KEY TRENDS ACROSS EUROPE For the third consecutive year Russia had the highest level of development in Europe in 2008 with the completion of 1.65 million sq.m of shopping centre space, representing a 23% increase in stock. The slowdown in development activity had already started in the second half of the year, with the six months to December accounting for approximately 40% of total completions. The average scheme size was again relatively large at just under 34,000sq.m, due to a number of large regional schemes opening. Indeed four schemes of over 90,000sq.m opened in 2008. Turkey and the UK were the second and third most active markets in Europe respectively. The UK returned to the top three for the first time in more than five years due to the completion of three large-scale developments. The UK was by far the most active Western European market in 2008, with the record completion of just under 840,000sq.m. The three largest openings accounted for almost half of this, with the arrival of the 151,000sq.m Liverpool One, the 150,000sq.m Westfield London and the 93,000sq.m Broadmead Centre/Cabot Circus in Bristol. Bulgaria and Romania experienced the largest percentage increase in shopping centre provision at 76% and 62.5% respectively. Development has accelerated in recent years and, although the current environment has slowed development activity somewhat, there are still numerous projects under construction. Bulgaria should see the number of shopping centres almost quadruple in the coming two years, with 21 schemes currently under construction. However, even when all this space is completed, GLA per 1,000 inhabitants will be only marginally above the forecast emerging Europe shopping centre average density of 102sq.m per 1,000 inhabitants. In line with recent years, shopping centre development activity in Mediterranean Europe was significant, with Spain and Italy being the second and third most active markets in Western Europe. Whilst in Spain completion levels were boosted by a number of large projects such as the 90,700sq.m Islazul shopping centre in Madrid and the 82,300sq.m second phase of Plaza Imperial in Zaragoza, Italy saw 31 small to medium sized schemes completed. The high levels of development in Italy have brought shopping centre floorspace provision almost into line with the EU-27 average of 206.4sq.m per 1,000 inhabitants. However, provision is still unequally spread across the country despite the fact that most development in the last year has been focused on the relatively under-supplied central and southern regions.

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Shopping Centre GLA (sq.m) per 1,000 Population SHOPPING CENTRE GLA (sq.m) PER 1,000 INHABITANTS Norway Sweden Ireland Netherlands Austria Denmark Estonia Luxembourg UK Finland France Portugal Latvia Spain EU-25 Average EU-27 Average Lithuania Italy Switzerland Czech Republic Poland Slovenia Germany Slovakia Hungary Malta Belgium Romania Croatia Turkey Russia Greece Ukraine Bosnia Herz. Bulgaria Serbia 0

100

200

300

400

500

New Shopping Centre GLA 2008 NEW SHOPPING CENTRE GLA 2008 (million sq.m)

Russia Turkey UK Spain Romania Italy Poland Ukraine Germany France Portugal Czech Rep Denmark Sweden Austria Switzerland Greece Netherlands Bosnia Herz. Hungary Bulgaria Slovakia Lithuania Ireland Finland Slovenia Serbia Norway Latvia Luxembourg Estonia Croatia Belgium Malta 0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8


SHOPPING CENTRE DEVELOPMENT REPORT EUROPE APRIL 2009 EUROPEAN SHOPPING CENTRE GROWTH Total shopping centre GLA has doubled over the last 10 years, mainly due to the development boom in Central and Eastern Europe. Whilst the forecast for 2009 is a marginal increase to just over 10 million sq.m this might turn out to be slightly lower as only 89% of this pipeline is currently on schedule for completion. In 2008 Central and Eastern European countries accounted for 56% of new space, in line with 2007.

Retail Market Indicators EU-27 Av. 2008 28,961 16,797 2.1% 2.4%

GDP Per Head (€) Private Consumption Per Head (€) Private Consumption (% real change pa) Average Consumer Prices (% change pa)

2007 23,452 13,500 2.2% 2.2%

September 2008

2010 is likely to see the lowest amount of new shopping centre GLA in five years. Much will depend on the depth and duration of the global economic crisis. If the market picks up there will be a significant amount of half-finished projects in Eastern Europe.

European Shopping Centre Growth 11

140 New Shopping Centre GLA Per Annum (sq.m) Total GLA (sq.m)

130

10

120

SHOPPING CENTRE INVESTMENT

9 8

100

7

90

70 5

50

3

40 30

2 20 1

Finance for shopping centre investment is generally more difficult and expensive to obtain, with LTV rates down from 80-90% to 55-65% on average and loan margins increased. Across Europe, there have been few forced sellers to-date; a large proportion of deals still involve new developments rather than standing investments. The dominant developers in most markets tend to be local players. The outlook for investment markets in 2009 is uncertain, however investor surveys continue to show the popularity of retail investment. Large lots such as shopping centres will remain out of reach for many investors until finance markets recover, but prime centres offered to the market will be well-received by investors in most countries, with their diverse tenant base, asset management potential and indexed leases likely to be increasingly attractive to experienced investors as yields move out. For further information, please contact: Alexander Colpaert, London, Tel: + 44 (0) 20 7152 5244 E-mail: alexander.colpaert@eur.cushwake.com Cushman & Wakefield LLP 43-45 Portman Square London W1A 3BG www.cushmanwakefield.com

10

Es t. 20 10

20 05

20 00

19 95

19 90

19 85

19 80

19 75

19 70

0 19 65

0 19 60

The overall mood among investors is one of caution, with more focus on fundamentals and a ‘risk averse’ mentality. However, demand for the very prime dominant regional shopping centres remains healthy – subject of course to the availability of finance and the appropriate pricing readjustments. Whilst yields for prime schemes have softened significantly they have been more resilient than secondary as the current market conditions have precipitated a ‘‘flight to quality’’.

60

4

<

Yields continued to shift outwards throughout 2008 across Europe and in most markets yields are back to their mid-2005 levels. A further rise in yields is expected before prices stabilise, possibly towards the end of the year, although further yield rises in certain parts of the market in 2010 cannot be ruled out as weakness in the occupier market impacts on pricing.

80

6

Shopping Centre Rents & Yields Country Austria Belgium Czech Rep. Denmark Finland France Germany Hungary Ireland Italy Netherlands Poland Portugal Romania Russia Spain Sweden Turkey United Kingdom

Prime Rent (€/sq.m/year) 2,000 – 2,500 1,000 – 1,400 600 – 1,000 450 – 550 900 – 1,100 1,500 – 2,000 1,500 – 1,800 600 – 1,350 2,000 – 2,500 700 – 750 650 – 875 700 – 1,100 750 – 1,000 600 – 1.000 2,000 – 3,000 700 – 1,000 600 – 800 600 – 900 2,000 – 2,500

Prime Yield (%) 6.00 – 6.75 5.25 – 6.00 6.50 – 7.50 5.25 – 5.75 6.00 – 7.00 5.25 – 6.00 5.50 – 6.50 7.00 – 8.00 6.00 – 6.75 6.25 – 7.00 6.00 – 6.75 7.25 – 8.00 6.00 – 7.00 7.75 – 9.00 12.00 – 12.50 6.50 – 7.00 6.00 – 6.75 9.50 – 10.50 6.75 – 7.25

With respect to the yield data provided, in light of the lack of recent comparable market evidence in many areas of Europe and the changing nature of the market and the costs implicit in any transaction, such as financing, these are very much a guide only to indicate the approximate trend and direction of prime initial yield levels and should not be used as a comparable for any particular property or transaction without regard to the specifics of the property.

This report has been produced by Cushman & Wakefield LLP for use by those with an interest in commercial property solely for information purposes. It is not intended to be a complete description of the markets or developments to which it refers. The report uses information obtained from public sources which Cushman & Wakefield LLP believe to be reliable, but we have not verified such information and cannot guarantee that it is accurate and complete. No warranty or representation, express or implied, is made as to the accuracy or completeness of any of the information contained herein and Cushman & Wakefield LLP shall not be liable to any reader of this report or any third party in any way whatsoever. All expressions of opinion are subject to change. Our prior written consent is required before this report can be reproduced in whole or in part. Should you not wish to receive information from Cushman & Wakefield LLP or any related company, please email unsubscribe@eur.cushwake.com with your details in the body of your email as they appear on this communication and head it “Unsubscribe”. ©2009 Cushman & Wakefield LLP All rights reserved.

Million (sq.m)

With the fall-off in investment activity now widespread across Europe, the overall volume of investment transactions declined by 55% on 2007 to €118 billion. Retail volumes amounted to €31.95 billion in 2008 – a virtually identical fall to the all-property figure. However, retail has maintained its share of the European investment total at around 27%, indicating its continuing popularity as an asset class within the overall property sector.

Million (sq.m)

110

Property investment activity slowed significantly in 2008, particularly for large-scale deals reliant on debt-financing. Only a handful of large shopping centre (portfolio) deals were recorded, with most of the activity taking place in the first six months of the year.


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