The stock of large retail space in Greece rose by 22% last year, bringing the total to 865,000 m2. Yet development of shopping centres in the country has been slower than in other European countries, owing to a lack of large sites with appropriate land use and a slow planning process. Under Greek law, strict regulations apply to building in areas that are allocated for specific purposes, such as tourism, agriculture or forestry. This can make the transaction process complicated.
Greece’s largest shopping centre, the Votanikos mall, was intended to transform Athens’ modern retail offer. Work on the 69,000 m2 scheme began in 2007 after developer Babis Vovos International Construction (BVIC) received demolition and excavation permits, as well as approval from the Athens national heritage. A wider regeneration project, Votanikos also includes a sports complex next to the shopping centre. But the development stalled after local residents called for its cancellation. BVIC will now appeal a court decision to suspend works temporarily at Votanikos. A final decision will be made by the high court in March.
“Planning is a bureaucratic, time-consuming process, particularly for a large-scale development,” says Eri Mitsostergiou, associate director of European research at Savills Greece. Residents were concerned that Votanikos would hurt independent retailers in the local area. Originally scheduled for completion in the first half of 2009, the €250m scheme is facing substantial delays. As a result, the progress of the Greek retail sector will suffer.
Greek REITs, national and international property funds and wealthy individuals have been the main players in a market characterised by a limited number of transactions and small lot sizes. The size of the market has also limited the number of foreign investors, with owner-occupiers often developing schemes to hold.
Moreover, the local consumer culture is oriented towards open-air high street shopping. Yet the success of The Mall – owned by Lamda Developments – has fuelled demand for modern shopping centres in Athens. The Mall’s large floor space and competitive rentals have attracted retailers, while easy access and ample parking, as well as the chance to shop in an enclosed precinct – the city centre was the scene of last year’s riots – have drawn consumers.
Golden Hall, another project by Lamda, opened in late 2008. Despite recessionary fears, the 60,000 m2 mall is fully let, mostly to luxury brands, and is expected to remain insulated from the financial crisis by its wealthy customers. Retail schemes scheduled for 2009 are under construction and will increase the average density in Greece to 90 m2 per 1,000 inhabitants, according to Savills. However, most of the schemes planned for 2010 and beyond will be put on hold as a result of the economic slowdown.
“The occupational fundamentals are holding up because the retail development pipeline has reacted to the downturn,” says Mitsostergiou. “Speculative developments will take longer to absorb, although most of the schemes coming on to the market are already prelet. New projects have been postponed.”
Demand for office space is also expected to weaken in 2009 as the economic slowdown inhibits job creation. According to Experian, service sector employment will contract by 0.2% in 2009. Therefore, development completions will slow down over the next two years. This will ensure that vacancy rates remain steady.
Nevertheless, there will be some large-scale space requirements driven by consolidation activity in the corporate sector. “Take-up is weaker than it was last year but business mergers could launch new space requirements,” says Mitsostergiou.
Following two years of investor interest and strong competition for limited product, which led to sub-6% prime office yields in 2007, the period of yield compression came to an end last year. In line with international markets, transaction activity has slowed down since lending criteria was tightened and borrowing rates rose.
Given the consistent demand in the occupational market for high-quality product, prime office yields are likely to hover near 7.5-8.5%, reflecting the higher cost of capital. But secondary assets could be at risk from further yield decompression, presenting opportunities for distressed sales for equity buyers.
One sector that is expected to remain resilient is the logistics market. The industry has expanded over the past decade, driven by a growing economy, rising consumer spending and the growth of trade with the Balkan countries.
The eastern European economies have supported exports from Greece. But consumer growth in CEE has been interrupted, which has had a knock-on effect on Greece’s logistics sector. Although the financial turmoil has begun to take its toll, logistics are expected to offer potential for growth when the global economy comes out of the crisis. Modernisation of the retail sector will also boost demand for warehousing space.
Serbia
Serbia attracted foreign investment of only €800m in the first half of 2008 owing to political instabilities in the run up to the presidential elections in February. However, the real estate market continued to develop later in the year following the establishment of a stable government.
With the exception of food chain operators, retail investors normally choose Belgrade as the entry point to the market, afterwards expanding to other cities, such as Novi Sad, Niš, Kragujevac and Subotica. The stock of modern shopping centres in the capital is limited, at 115,000 m2 gross lettable area at the end of 2007, according to Colliers International. Landlords determine rental levels, which start at high initial values. The top rents now are recorded in Delta City shopping mall, ranging from €30-€80 per m2 per month depending on the retail category, size and position within the mall.
Mercator opened a 32,000 m2 shopping centre in the third-largest city in Serbia, Niš, in March 2007. The retail chain is also developing centres in the cities of Šabac, Kragujevac and Valjevo, all scheduled for opening in 2009. The 54,000 m2 Ušc´e shopping mall in New Belgrade is expected to open in March. “Ušc´e will be the largest shopping centre in Serbia, and will remain as such for a minimum of two to three years,” says Miroslava Markovic, a research associate at Colliers International, Serbia.
But MPC Holdings’ 15,000 m2 Immocentar project in Cerak, Belgrade, has been delayed. “There are two Immocentar shopping centres in Belgrade, both in the municipality of New Belgrade, which were opened in 2006 and 2007. However, the scheme in Cerak that was supposed to be opened by the end of 2008 has not been opened and it is yet uncertain when it will,” says Markovic.
In the first half of 2008, Belgrade reported the delivery of 66,000 m2 of new office space, an 18.5% increase on the six months before. Grade-A space constituted 75% of this new supply. Yet the city’s total office inventory is less than 518,000 m2, with 415,000 m2 of this in the CBD.
The country offers considerable potential for industrial development because of its strategic location on the border of eight countries. Yet the logistics investment market is still constrained by a lack of facilities and limited speculative construction. As most of the assets are owner-occupied, very few transactions have been recorded in the open market. Estimated yields range from 8% to 10.5%.
Croatia
Zagreb is Croatia’s strongest and fastest-developing market, alongside such larger Croatian cities such as Varaždin, Rijeka, Zadar, Šibenik, Dubrovnik and Osijek. Retail is one of the real estate market’s most dynamic sectors, supported by the strengthening of the economy, growing purchasing power and the prospects of Croatia joining the EU in the next two years. There are 13 new shopping centres in the pipeline that will bring a further 600,000 m2 of retail space to the capital by 2010 if they all proceed to completion, bringing Zagreb’s total shopping centre GLA to over 800,000 m2.
The city’s retail stock is around 230,000m2, and is made up of nine existing shopping malls. Around 110,000m2 of this is contained in three shopping malls, City Centre One, Mandi and Avenue Mall, which arrived on the market between 2006 and 2007. The additional stock will bring the capital’s retail market close to saturation, with around 800 m2 of GLA per 1,000 people, a large amount for a city of only 1m.
Yet the future of Croatia’s broader retail market remains promising. Zagreb is the only market that is heading towards saturation, so investors are likely to focus on Croatia’s other urban centres.
