Polish and Czech deals spearhead GE Capital’ push into promising territory
GE Capital Real Estate is planning further forays into the central European retail sector following two deals in Poland and the Czech Republic at the end of last year.
Managing director for central Europe and Germany Kendall Young says: “We are keen to expand our presence in central Europe as the region becomes more stable. An investment market is gradually emerging and as investors have little experience, some of the yields can be very attractive.”
The fund’s expansion in central Europe saw it join up in November with Heitman Central Europe Property Partners, in which it owns a 38% stake, to buy 13 shopping centres for around €200m.
The consortium bought 11 of the centres from Domy Towarowe Casino, the Polish property subsidiary of the Casino group, and the other two, in Warsaw and Wroclaw, from French property companies Apsys and Fonciäre Euris.
GE Capital then struck a deal with Danish company TK Development to buy an 80% stake in four shopping centres in the Czech Republic. TK will retain a 20% stake in the centres and will manage them for GE Capital.
Young explains: “It’s a very green market. Until now there has been development, but no established practice of investors acquiring assets in order to boost their value through further development and asset management.
“The market lacks liquidity, but you can see how tenants pay rent and this gives enough evidence to decide on values.
“A lot of these hypermarket-anchored retail schemes built in the late 1990s are starting to come to the market and we aim to cherry-pick assets as opportunities arise.”
The deals follow GE Capital’s strategy of entering markets through partnerships. Its holdings in the UK include a 50% stake in the Headrow shopping centre in Leeds, and a 50% stake in MEPC.
UK managing director Alec Burger says that the fund will continue to cautiously seek out opportunities in the UK: “We were net sellers in 2002, but are still looking for secondary centres of £15m-£30m. Over time, we may reduce our exposure from 50% to around 40%.”
Warsaw mall sale starts up market
Poland is seeing the birth of an investment market in shopping centres, following a landmark deal on its largest shopping mall, Galeria Mokotow.
Rodamco paid Israeli developer Globe Trade Centre €85m for a 50% stake in the 59,000m2 centre, in Warsaw’s first major retail deal for a single standing investment.
GTC, backed by DB Real Estate and Citibank, will retain a 50% stake and manage the centre. The deal has set a 10% yield benchmark for Warsaw’s retail sector.
Richard Bloxham, associate director of European retail at Jones Lang LaSalle, says: “All the major funds will look at Poland in 2003. Developers expect planning to become more stringent, which will increase the value of existing assets. There is also the anticipation that, as Poland nears European Union integration, investors will see significant capital growth and attractive yields on the back of sustainable income growth.”
Rodamco Europe’s managing director for central Europe, Hans Pars, says: “This deal is an important step for the development of the market in Warsaw. It is part of our plan to invest in the main central European markets, especially capital cities.”
Retail makes up 80% of Rodamco’s portfolio, with around 10% invested in central European retail.
Foray into Finland and Russia for Inditex
Spanish brand house Indistex is continuing its European expansion plans with a joint venture agreement to open Zara stores in Finland and Russia.
Under the terms of the agreement with Finnish retail group Stockmann, it will take the id-market fashion chain to Russia following the opening of a flagship store in Helsinki last April.
Zara will initially open a 1,800m² store in Ikea’s Meg a shopping centre in Moscow this spring. Further openings are scheduled in Finland in Turkey city centre and at a shopping centre on the east of Helsinki.
A source close to Zara says: “It is increasingly looking to expand into new markets through partnerships, following our tie-up with Percassi group in Italy and Baugur in Iceland in 2001.
“Gaining a local partner enables Zara to bypass the commercial disadvantage of having to get to grips with national property, tax and legal issues as it tolls out its different formats.”
Inditex and Gruppo Percassi respectively own stakes of 51% and 49% in Zara Italia.
The source adds: “Zara is particularly keen to develop its relationship with Stockmann, which was the first Western retail group to enter the Russian market, back in 1989. This gives Zara the opportunity to develop its activities in two countries.”
Inditex, one of the world’s largest retail groups, has gained increasing exposure over the past five years in the UK through its main brand Zara. It has recently launched its upmarket brand Massimo Dutti on London’s Brompton Road and at Hammerson and Standard Life’s Brent Cross shopping centre in north London.
Inditex’s global profits rose 31% over the first nine months of 2002 to €274m. It opened 199 stores in the period, and now operates stores in 44 countries across Europe, the Americas and Asia.
Inditex’s fashion brands for men and women include Zara, Massimo Dutti, Bershka, Stradivarius, Oysho and Pull & Bear. It has also launched a childrenswear brand called Kiddy’s Class.
Inditex’s European expansion
● The first Zara shop opened in La Coruña in 1975. The first store outside Spain was launched in Porto, Portugal in 1988, followed by stores in Paris and New York in 1989. Since then, the group has opened more than 1,400 stores across the world.
New markets for Inditex since 2001 include:
● Germany (2001): The first store in Berlin opened on Tauentzienstrasse in August 2001, followed by a 2,500m2 megastore in Frankfurt. Inditex has two more Zara stores in the pipeline, and will also launch Pull & Bear this year.
● Iceland (2001): Inditex struck a deal with Icelandic retail group Baugur to open stores in Icelandic shopping centres. Its first store is a 1,500m2 outlet in the Smaralind shopping centre, Reykjavik.
● Switzerland (2002): Adjoining Zara and Massimo Dutti stores opened last October on Place du Mollard, Geneva, shortly to be joined by younger brand Bershka and Oysho. Openings in Zurich and Basilea are scheduled for 2003.
● Sweden (2002): In October, Inditex signed for a 1,600m2 store on Hamngaten Street, Stockholm.
● Inditex is also planning to bring Bershka to the French and Dutch markets, and will continue its expansion of the Massimo Dutti brand in the UK.
Lend Lease plans siblings for ‘son of Bluewater’
Lend Lease is seeking future development opportunities in Spain after opening its first shopping centre in continental Europe.
“Any first project has to be a showcase for the company. Lend Lease in the UK is represented by Bluewater, but the market in Spain is only just starting to understand what we do,” says Fraser Denton, who headed the team responsible for the Australian-based developer’s newest venture – the 65,000m2 Tres Aguas scheme which opened outside Madrid in November.
Tres Aguas, which cost €150m to build, is being branded by UK observers as “the son of Bluewater”, with separate areas dedicated to different types of retailing. But Denton stresses the local influence.
“We developed the scheme in a 50:50 joint venture with Juan Alonso, a local Spanish landowner. All our schemes are research-based, and it was important to bear in mind differences in lifestyle which led to our abandoning a traditional foodcourt and going for bolder design,” he says.
“At the same time, we wanted to move away from the traditional Spanish concept of a hypermarket-anchored centre with 50 adjoining shops
The result is a development designed by international architect BDP and Peterhansrea Plvs Roman. It includes 143 stores offering fashion and home decoration as well as a 6,000m2 Super Cor store – the upmarket supermarket brand developed by Spanish department store chain El Corte Inglés.
Footfall at the centre stands at around 1.8m per week, and Tres Aguas has been nominated for this year’s ICSC European shopping centre awards.
“Our aim was to provide the biggest fashion offer outside Madrid,” explains Denton. “We wanted to bring 10 new brands to the city, as well as a local offer, and a mix of national and international brands.”
Brands at the centre include H&M, Zara, Benetton, C&A and Massimo Dutti.
And the company is eager to take on new challenges. “We are looking for further development opportunities in Spain,” says Denton. “We have an established team in the capital, and have shown that we can deliver a project four days early.”
Leisure at Tres Aguas
● The leisure and catering offer at Tres Aguas is based on research into Spanish lifestyle and habits.
● Lend Lease scrapped the idea of a foodcourt early on, observing that Spaniards favour sit-down restaurants over fast-food outlets, while snacks tend to be sweet, usually accompanied by coffee.
● Tres Aguas features two eating areas – an outside plaza including restaurants and summer terraces as well as a cinema, and an inside area broken up into stalls offering cakes, ice-cream and coffee.
● “The two areas are designed to co-exist for different times of the day,” says Denton. “Our inspiration for the snack area came more from Movenpick than from Bluewater.”
Bringing order to Russian chaos
Last year a group of developers and agents set up the Russian Council of Shopping Centres under the global International Council of Shopping Centres umbrella.
President of the advisory board and Jones Lang LaSalle director Michel Pascalis explains the organisation’s role in a growing market: “A new shopping centre opens in Moscow every three months. There is no restriction on where, or how much you can build. There is no record of how many shopping centres there are in Russia, or where they are. The RCSC is designed to put an end to this lack of information.”
Pascalis set up the retail department of JLL in Russia in 1997 and has since seen around 92,900m2 of open markets – Russia’s traditional retail sphere – fall under the bulldozers of shopping centre developers.
In 2002, 12 new shopping centres, including four Auchans, two Metros and one Ikea, were launched in Moscow. The city is opening up to foreign investment, and Pascalis believes the process will be aided by the council.
“In Moscow, there is only 60m2 of shopping centre for every 1,000 inhabitants, compared with 300m2 in Warsaw and 400m2 in Paris. This is despite the fact that average income in Moscow is now at the same level, or higher, than income in Prague, Warsaw and Budapest,” he says.
But overdevelopment could be a problem. “There is still a risk that too much could be developed in the city, lowering the value of individual schemes. A construction permit in Moscow requires just 64 signatures, with no law to control development.”
The RCSC, says Pascalis, can help developers and investors new to the market understand the bureaucracy. However, it is not, as with the British Council of Shopping Centres, a lobby group to influence the planning regime.
“Our main role is to provide information,” he says. “We are carrying out research to map current development in Russia, which will help investors make decisions on location, and give some indication of performance.
“At the moment, information provided by authorities and developers does not match, and this does not accommodate the development of a healthy investment market over the next few years.”
The RCSC will also advise on development issues relating to changing lifestyle patterns in Moscow, he says. “We can provide information, for example, on issues such as parking – how much is necessary to accommodate the increasing importance of cars in modern Russia.”
The RCSC can also provide information on corruption, but, he says, “No-one comes to Russia without being aware of the problem. There is a level of corruption in all countries and people inevitably deal with it.”
Pascalis anticipates that there will be a further 185,800m2 of construction over the next few years.
Retail round-up
● Armani’s first store in Spain – the 250m2 Armani Casa – offers shoppers in Marbella the complete Armani home range. It is the eighth store to open in Europe, following the establishment of outlets in Milan, Paris, Istanbul and Athens.
● US outdoor specialist Patagonia’s ambition to establish outlets in all major European cities has come one step closer with the opening of a flagship store in Milan. The company already operates stores in Chamonix, Monaco and Dublin.
● Spanish retailer Mango is planning further expansion in Russia, adding to stores in Moscow, Rostov, St Petersburg and Kaliningrad, in the early part of this year. It will soon open stores in Bulgaria, Moldovia and Kazakhstan.
● A handful of British retailers are pulling out of Germany as increasingly difficult trading conditions jeopardise profits. HMV is to close its three German stores, blaming the country’s “price-focused market”. Meanwhile, Laura Ashley will also close its German stores as part of its plans to shut 35 outlets in continental Europe, and Kingfisher is looking to close six Castorama stores and sell its German electrical chain.
● German retail chain Lidl plans to open 25-30 supermarkets in Hungary in the spring of 2003. The company has so far invested €20.4m in Hungary and is looking for stores of 1,200-1,600m2, mainly in the east of the country. An study by IGD, the food and grocery information group, also claims that the discount retailer will add Norway to its portfolio in July, and is looking at further investment in Sweden, Denmark, the Czech Republic, Estonia and Poland. The push would take the number of countries in which Lidl operates to 19.
