Malls face a mauling without commercial savvy

If all the announced mall openings come to fruition, Romania should be home to over 100 commercial centers in 2010, when such developments will be open in all Romanian cities with at least 150,000 inhabitants.
Developers and specialists on the market are divided over whether this projected development spree is reasonable or overly ambitious. In March, Irish developer Mivan, which is planning 10 malls in Romania, said it was considering abandoning its project in Arad, because of the many similar projects that have been announced for the city. Judging by developers' plans, Arad should see already at least four commercial centers in the future, from GTC, Atrium Centers, Red Management and Africa Israel Europe.
According to Reuven Havar, country manager of Africa Israel (AFI), also the developer of the Bucharest-based Cotroceni Park, the secret of success lies in integrated developments. AFI develops mixed projects with commercial, office and residential elements. Havar says this is a factor behind his firm's yields of at least 12 percent. His company does not plan to compete with others in terms of rent, but by guaranteeing a certain sales level, for example.
Another developer, Portuguese firm Sonae Sierra, has revised its yields in order to fight back against the competition. Sonae Sierra representatives also think that a good mix of tenants is key to making a mall a success. According to Jorge Morgadinho, manager of the firm, if the malls do not offer a good brand mix, they may become B or C grade commercial centers.
This seems to have happened in Iasi, a city where both foreign investors such as Red Management Capital with Iasi City Center and the local investment of Iulius Group found profits. Other operators, however, failed to replicate their success. For example, in the middle of last year, Iasi's shoppers were offered the choice of a new shopping center, Axa Niciman Shopping Center, developed at a cost of EUR 6 million by the local company Niciman. Delivering 5,000 sqm and 40 shops on two levels, the new shopping center seemed to be a good idea for the developers and retailers alike.
But tenants soon started to complain of decreasing sales, and the shopping center has looked more like a museum lately. Retailers there say that minimum sales of RON 700 daily – which allows them to cover operational costs but not make a profit – are no longer possible, with shops registering up to RON 200 daily, due to the very low customer traffic. They have complained to a Iasi newswire that even taxi drivers do not know where the shopping center is located and that there was no advertising campaign to alert potential customers to its presence in the town.
According to developers on the market, especially those that have started a greenfield or brownfield investment, brand awareness added to a good development plan can bring success. But this cannot be guaranteed without obeying the strict rules of marketing and investments. Adrian Sandu is marketing director at Neocity Group Romania, the developer of City Park Mall in Constanta which was launched in May this year. “Besides choosing a good location, it is also important to define the concept of the project, the balance between tenants and anchors, choose the right consultant for the project and the project management itself. Even if a shopping center benefits from high levels of awareness, nobody can guarantee success, unless there is a good management operating through a win-win formula between the tenants and the owner,” he said. He added that City Park Mall of Constanta had fully rented out the first two levels of the mall, and negotiations for renting the last four shops on the recently opened third level (on the second floor) were ongoing.

Romania, third choice in Europe for big retailers
According to a recent study released by Cushman & Wakefield Activ Consulting, Romania will rank fourth in Europe for commercial center stock, if all the announced projects reach completion, with three times its current stock. However, a study by the International Council of Shopping Centers (ICSC) put Romania at the tail end of the European scale for current operational commercial center stock: the European average is 195 sqm for 1,000 inhabitants, while Romania delivers 40.9 sqm for 1,000 inhabitants. By the end of 2009, the stock will total 1.8 million sqm, besides the already functional 910,000 sqm.
According to retail specialists, Bucharest and the other major Romanian cities need more commercial spaces as Romanians are big spenders. According to the ICSC study, Europeans spent EUR 1,110 per buyer in commercial centers in 2006, while commercial units registered sales totaling EUR 500 billion. By 2017, this value will reach EUR 700 billion in Europe, according to the study. Romania is the third choice for international retailers, according to the same study. In the next three years, 11 malls will be built in Romania, and Bucharest alone will deliver 1 million sqm of shopping space by 2011, according to market estimates.
The International Retailers Survey found that Russia will be the best location for retail resources for the next two years. The Czech Republic comes second, while Romania ranks third, with 8 percent of international retail networks targeting the country for investments.
In terms of planned expansion, Romania ranks seventh in Europe, proof that the economic signs have started to encourage more investment. The country has climbed two positions in this chart since 2006, when retail expansion started locally. Eastern Europe remains a favorite region for retail expansion.
The next five years are expected to bring important moves in this field, with 36 percent of the big retail networks targeting the region for development. The study counted 5,700 functional commercial centers in Europe, delivering over 111 million sqm of rentable area. When it comes to the locations for such developments, the study reported that 73 percent of retailers preferred high street positioning, 46 percent locations within the city and 35 percent sites outside the city, including out-of-town retail parks.
In the next five years, Romania will see 100 new shop openings within commercial centers according to the ICSC study, and the country will rank fourth in Europe for such openings, after countries such as Russia, Ukraine and Spain, but ahead of countries including Poland, the Czech Republic and England, the ICSC study found.

By Magda Purice