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European Shopping Centres: The Development Story 2019

2018 saw approximately 2.6 million sq.m of new shopping centre space completed, some 28% below the figure achieved in 2017 and bringing the total size of the European shopping centre market to 168.1 million sq.m. The amount of completions last year was the lowest in the previous 24 years and is comparable with the volumes delivered in the early 1990s when the first traditional shopping centres in Central and Eastern Europe were opening.

Shopping centre development slowed down in Western Europe, where annual completions declined by 23%. France retains its top position for shopping centre development in this region, despite a 28% decrease, when compared with the amount of space opened in 2017. While a similar trend was also seen in a number of other Western European countries, slightly improved results were recorded in Germany, Finland or Sweden.

Central and Eastern Europe also recorded a strong (31%) decline in shopping centre development in 2018. While development has decreased across the whole region, Turkey experienced the strongest drop in completions, from 1 million sq.m in 2017 to 0.5 million sq.m in 2018. However, Turkey, Russia and Poland were the most active countries and together they accounted for nearly 50% of new openings in Europe.

Development is expected to remain stable over the next two years, with 6.5 million sq.m currently in the pipeline and due to be delivered over 2019-2020.

In the majority of European countries, the shopping centre market is approaching maturity and demand for shopping centre space is in relative equilibrium with supply. While the pace of new development has been slowing over the last five years, the total size of the market is still increasing and shopping centre competition is strengthening. Developers are trying to retain their market positions and are focused on redevelopment and refurbishment projects aimed at creating sophisticated, modern and more aesthetically pleasing shopping and leisure places.

Opportunities for new development are seen mainly in two types of schemes:

1. dominant innovative schemes with a strong leisure component, which can replace aging and unappealing schemes or

2. smaller convenience/community retail schemes, where a distance to the store, presence of food operator and well curated tenant mix are crucial factors in a scheme’s success.

However, it is expected that this will lead to an even stronger polarization in the shopping centre market, with competitive prime schemes on the one hand and struggling secondary schemes on the other hand. Consequently, this is expected to result in the re-purposing of existing secondary retail space to office, residential and other uses. In essence, many shopping centres are likely to be transformed into mixed-use schemes.

Shopping centre developers are also expected to experiment with other existing or new retail formats. Landlords will continue to test different sizing and tenant mixes, while leasing risk is also being shifted from occupiers to landlords as more and more flexibility is required.

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