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CONTINENTAL CONVERGENCE

Europe’s retailers and developers increasingly crossing frontiers

By Susan Thorne

La Part Dieu, Lyon, France, is only one of 64 shopping centers that Rodamco Europe has built across the Continent.

When the euro notes and coins were introduced in 12 European countries in January, the new common currency was hailed as a tangible symbol of something bigger: the growing unity and integration of the Continent. In no arena is this convergence more apparent than in the retail and shopping center development industries. Increasingly, European shopping center owners, managers, retailers and investors are finding opportunities outside their home countries, and this international activity, which has gathered speed in the last five years, shows no sign of stopping.

“As Europe becomes more and more united, things are becoming more regional,” said Gontran Thüring, corporate leasing director at Ségécé, the management arm of Paris-based shopping center owner Klépierre. “You may find a retailer who is interested in opening a store in Lille, France, and another in Belgium, because they are in similar markets close together. Or a retailer in northern Italy might look to shopping centers in southern France instead of southern Italy because they are in the same region.” With the euro in place, it has also become easier to compare rents in one country with those in another, he noted.

London property investment group Hammerson owns and manages five centers in France, including Parinor Shopping Centre.

Cross-border expansion by retailers has been an important catalyst for this activity. This is hardly a new phenomenon in Europe, but the explosion of retail chains in the past decade and the saturation of their home markets have sent many retailers into foreign territory in search of new customers. Spanish retailer Zara is a prime example of this vigorous cross-border expansion, observed Bryan Roberts, senior European retail analyst at consulting firm Mintel’s Retail Intelligence, London.

“Ten to 15 years ago, Zara only had its Spanish operations plus a few bits and pieces in Portugal,” he pointed out. “Now you’ve got this Spanish company opening stores all across the world. It’s a very familiar trend.”

Expansion by acquisition has enabled some companies to leap borders rapidly and on a large scale, as happened when Germany’s Metro acquired Dutch supermarket retailer Makro in 1997, and when the U.K.’s Kingfisher bought the French Castorama-Investissements do-it-yourself chain in 1998. A large number of retailers now operate in multiple markets (see chart). Generally speaking, north European and English retailers are the most aggressive, while Spain — Zara notwithstanding — and Italy have fewer international players.

The international ambitions of mall developers have made it easier for retail chains to skip borders.

“We encourage German retailers to rent store space in our properties outside Germany,” said Helmut Koprian, managing director of ECE Projektmanagement, Hamburg, the mall development company. “And through our contacts made outside the country, we enable international retailers to enter the German market.”

Certain merchandise categories have “gone international” more than others. Roberts identifies food, do-it-yourself home improvement products, electronic goods and apparel as the strongest sectors for cross-border retailing. In terms of sheer square footage, probably the biggest international impact has been created by the hypermarket giants of France, Germany, the Netherlands and the United Kingdom, whose growth is now largely outside their home markets. Groupe Auchan, Carrefour, Groupe Casino, Intermarché, E. Leclerc, Royal Ahold and Tesco, among others, have been opening new stores at a dizzying pace in Eastern Europe, where a lack of indigenous retail chains and brands, and loose land legislation mean little competition and readily available sites, particularly outside urban areas. Most hypermarket development to date has taken place in the Czech Republic, Hungary and Poland, but it is also spilling over into Bulgaria, Latvia, Lithuania, Romania and Russia. This expansion is especially potent because certain companies, such as Auchan and Carrefour, develop malls that they anchor with their branded hypermarkets and fill out with their other retail banners in the in-line retail shops. Auchan’s hypermarkets, for example, are often accompanied by such Auchan-affiliated stores as Kiabi, d’Orsay or Pimkie apparel stores.

ECE Projektmanagement’s Stadt-Galerie Plauen, Germany. The company is now developing in Eastern Europe, too.

The hypermarkets’ eastern expansion has been fueled by tight land-use control in western Europe that strictly limits the number of available mall sites. This has also prompted northern and western European shopping center investors and developers to seek less mature markets in the south and east (Italy, Spain and the former Communist countries) for new development possibilities. This is especially true of investors in France, who can find few opportunities at home, said Andrew Watson, head of the investment division at The Retail Consulting Group, Paris.

Consolidation in the shopping center industry has also encouraged cross-border activity. The Dutch property giant Rodamco Europe changed its focus from an office portfolio to retail in the early 1990s, then entered Spain with individual mall purchases starting in 1994. In 2000 the company acquired Swedish mall developer Piren’s 11 Scandinavian centers plus the 10 Dutch shopping centers of Amsterdam-based Amvest. Currently, Rodamco has 64 shopping centers in eight countries: the Czech Republic, Denmark, France, Germany, Hungary, the Netherlands, Spain and Sweden.

Klépierre and Ségécé have gone from owning and managing 12 shopping centers several years ago to about 200 today. Of those centers, 167 were added by the purchase in 2000 of the Carrefour Immobilier portfolio — the largest real property transaction ever in France — which included 74 centers in Central Europe, Greece, Portugal and Spain. This extended Ségécé’s international operations beyond its former small presence in Belgium and Italy and made the Paris-based firm a dominant management player in Europe.

ECE, which has 65 malls in Germany, is also extending its geographic scope. ECE opened its first shopping center outside Germany in Wroclaw, Poland, in the fall of 2001 and plans others in Lodz, Poland; Prague and Brno, Czech Republic; and Budapest and Pecs, Hungary, over the next two years.

Another participant specializing increasingly in retail is Dutch property investor Corío, which acquired 10 centers in France, Italy and Spain from the Trema Group in November. Players outside central Europe are also on the move. Oslo, Norway-based Steen & Strom owns 75 shopping centers in Denmark, Norway and Sweden, and manages 28. Hammerson, London, owns and manages six centers in France and an additional five in Germany.

ECE’s City-Galerie Augsburg. The center is German, but not all its tenants are.

There are definite benefits for center owners and managers in becoming multinational in scope c indeed, it may almost be a necessity in relationships with cross-border retail tenants today, executives say.

“Tenants are becoming more international, brands are positioning themselves internationally, consumers are showing shopping habits that are international,” said Joost Bomhoff, managing director of Rodamco Europe, Amsterdam. “If retailers want to expand into a new country, it is easier for them to deal with an international landlord.” Bomhoff said that Rodamco focuses chiefly on regional and super-regional shopping centers in its portfolio because these malls have the highest proportion of international tenants and can create strong cross-border synergies of this kind.

Geographic diversity also reduces center owners’ exposure to financial risk and provides an opportunity to focus on the most profitable markets.

“With shopping centers in several different countries, we can take a balanced approach,” Bomhoff explained. “We have the opportunity to allocate resources to those markets which offer the best opportunities.”

Expertise is another perk. As landlord, Rodamco can draw on the best management practices from the different environments in which it operates. “With our pan-European portfolio, we are able to identify trends from the more sophisticated markets and take them to other, less advanced markets,” he said.

Multinational collaboration on shopping center projects could be the next growing trend. CentrO, the successful 200-store mall opened in 1997 near Oberhausen in western Germany, is a venture of British developers Peninsular & Oriental Steam Navigation Co. and Stadium Group. Another example is the Zlote Tarasy mixed-use project under development in Warsaw, Poland, which will include 600,000 square feet of retail. Amsterdam-based ING Real Estate is the principal player, with land contributed by Polish company Gmina Warszawa-Centrum and a half interest purchased by Rodamco Europe.

Though both ING and Rodamco are based in the Netherlands, their common background is just a coincidence, said Jan van Hensbergen, general manager of ING’s Polish operations “We came together with Rodamco in the Polish environment, and in fact there were also French, German and British investors who were interested in the project.”

Rodamco Europe’s Fisketorvet, Copenhagen, Denmark, one of several the company owns in Scandinavia.

National differences are being overcome in many ways, yet there are still significant obstacles, such as language and culture. Taxation and land-use legislation also create different conditions for the shopping center sector from country to country, and even leasing practices can vary widely. Retail Consulting’s Watson points out that French standard lease contracts in shopping centers have a 12-year term, while those in the United Kingdom range anywhere from 15 to 25 years. There are also different practices with respect to linking rent to sales performance, he said.

From the mall manager’s standpoint, national and regional differences mean that market expertise remains local.

“Purchasing a shopping center is easy — you just have to have the money,” observed Ségécé’s Thüring. “But management continues on a day-to-day basis.”

Ségécé prefers to work with local management partners where possible, such as Madrid, Spain-based Centros Shopping Gestion. “It is a real advantage to have them,” Thüring said. “It would take us 20 years to build up that kind of knowledge of the market by ourselves.

But so long as this and other basic rules are followed, crossing borders is a great thing for the industry, he opined. “A united Europe is a great thing,” he said. “I hope the new currency is just the beginning.”

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