South Bucharest got more crowded with the opening of another mall last week, which has put pressure on the existing retail centers in the region. The first shopping mall to have opened in the south of the city, City Mall, is however in the process of re-establishing itself as a proximity shopping destination. Mihai Agaficioaia, general manager of City Mall, doesn’t expect the impact of Sun Plaza opening nearby to be too great.
By Corina Saceanu
In fact, no recent mall openings have had a major impact on City Mall’s traffic, says Agaficioaia. “When AFI opened we saw no change in traffic. Nor did we with Liberty Center, which is closer to our mall. People probably went to see Liberty but came back to us – they didn’t want to change their shopping venue entirely. Our marketing efforts paid off,” says the GM.
To him it is obvious that some customers will also visit the new competition. “But as we will be a proximity mall, our customers come here for different reasons,” he says. Anyway, the customer exodus should not last long. “There are now many malls, so we might lose some traffic immediately after the opening, but we hope to get it back fast, in a month or two,” says Agaficioaia.
Traffic in City Mall over the last two years has been influenced both seasonally and by the subdued retail industry in 2009. Marketing campaigns helped City Mall maintain its customer base, says Agaficioaia. Its marketing budget for the last financial year was EUR 400,000.
City Mall started 2008 with an average daily traffic of 15,600 visitors, which fell during the slow summer months and then peaked at almost 20,000 in December. In early 2009 it fell to 11,500 visitors a day, to which it stayed close for almost the entire year, with another peak in December, 15,800 visitors a day on an average. The beginning of 2010 has been better than last year, with an average of 12,500 visitors per day so far.
“In City Mall there is no difference in traffic between week and weekend. We do not rely solely on weekend sales, which is an advantage for retailers as their sales are constant,” says Agaficioaia. Moreover, the number of viewers at the shopping center’s cinema, Cityplex, increased in 2009 compared to 2008 and the trend is continuing this year.
Meanwhile, the shopping center has dropped in value on the books of its owner, investment fund APN/UKA. The latest valuation in December 2009 was EUR 33 million, down from EUR 51.6 million mid-year. Its current value is almost a third of the price the Australian investment fund paid for it, around EUR 103 million, in 2006.
This was due to falling revenues at City Mall, from EUR 2.5 million in the first half of the 2009 financial year, to EUR 659,000 a year later. For the fund, the financial year 2010 started in July 2009. In its recent financial report the investment fund blamed the “increased vacancies and selected rent concessions due to the deterioration in the operating environment and increased rental competition.” Agaficioaia expects the mall’s revenues this year to be similar to last year. “The market conditions don’t offer opportunities to increase revenues, we can’t target the impossible. We need to find a sustainable level of revenue from rents,” he says. The mall’s fall in value led it to breach its loan-to-value covenants with UniCredit Bank, which is currently being re-negotiated.
The shopping mall is currently focusing on leasing its vacant space and has hired Cushman & Wakefield real estate agency for the purpose. “We have around 17 percent vacant space, because some retailers left in 2009 – they entered insolvency or went bankrupt. Nobody left because we couldn’t help them through this hard period. We are trying to keep those retailers with development potential,” says Agaficioaia. Besides offering tenants a reduction in rent of 20 percent on average last year, the City Mall owners tried to synchronize its own marketing campaigns with some retailers’ campaigns, which paid off, according to the GM.
His deadline for finalizing the repositioning of the mall is the end of this year. This could be Bucharest’s first proximity shopping center, but probably not its last. “Other shopping centers might follow suit. There will be so many centers in the city that they won’t be able to attract people from other areas, so they will need to focus on their neighborhood. For example Liberty Center could become a proximity shopping mall. So could Iris Shopping Center,” predicts Agaficioaia.
Previously, City Mall tried to diversify and create office space on its third and fourth floors, but the project was put on hold as office demand declined. Retail however worked out better. The mall has managed to attract a new tenant, Pada Murre, while another, Sprider, has expanded its sales area by 400 sqm to 1,850 sqm, becoming the largest store in the mall.