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Immochan, the real estate division of Auchan, will open the first stage of a retail, office and residential project in Brasov next year. And it is not the only retailer to announce real estate investments of its own. As traditional developers have scaled back their activity, retailers have stepped forward to fill the. gap
The property divisions of three of the largest local hypermarket operators – Carrefour, Auchan and Cora – invested in several commercial developments of their own last year and in the first quarter of 2013. Carrefour teamed up with investment fund NEPI to open the EUR 65 million Ploiesti Shopping City mall, Auchan invested in the Auchan City commercial center in Giulesti, Bucharest, and Cora invested in three locations of its own in Constanta, Bacau and on Alexandriei Road in Bucharest.
The opening of similar projects is expected from next year. Brasov alone should see three such projects – Coresi Brasov developed by Immochan, the property division of Auchan, another project developed by Carrefour and NEPI and a Cora commercial center. Cora is also expected to expand in Braila and another Auchan scheme has been announced for Ghencea, Bucharest.
The opportunity to buy cheap land and gain greater control over the spaces where they operate hypermarkets, but above all, fewer new projects from traditional developers who are struggling with the lack of financing, has pushed retailers Carrefour, Auchan and Cora to bring their property divisions to Romania and invest in their own commercial centers and even malls.
“Large retailers develop property divisions to take advantage of the traffic and attractiveness generated by a hypermarket or another major retailer. Such an anchor is usually the main traffic generator in a commercial center and it attracts other tenants who serve complementary needs. The retailers’ real estate divisions develop the commercial galleries attached to a hypermarket and can also often develop larger-scale commercial centers,” Razvan Sin, head of the retail department at DTZ Echinox, told BR.
There are two interlinked factors behind retailers investing in their own projects, Luiza Moraru, head of retail at CBRE Romania, told BR. “First, hypermarket operators were faced with a very limited supply of new commercial space last year, so in order to grow, they felt the need to start their own projects where they would act as anchor tenants. Second, they decided to develop projects through their own property divisions because they wanted to fully exploit the potential of the local retail market in Romania and to benefit from the advantage of owning their own commercial centers,” she said.
To these factors, Carmen Ravon, head of retail leasing at Jones Lang LaSalle, adds the opportunity to buy plots of land at very good prices, especially in the 2011-2012 period. On the other hand, the same crisis that has led to good opportunities for land acquisition has prevented players from finding enough solid retailers with expansion plans of their own to fill these commercial galleries, she told BR. At present this applies both to retailers’ real estate divisions and mall developers.
Romania is not the only place where retailers have applied this strategy. Immochan has made similar investments in countries such as Hungary, Poland, Portugal, France, Russia and Spain, said Ravon.
Worldwide, an important player is Inter Ikea, which develops and owns the commercial centers anchored by Ikea stores, said Sin, adding that in Romania the phenomenon has been given impetus by the lack of new projects being developed.
Provided they bought a plot of land in a good location and later invested in a project with the correct layout, retailers can develop a successful venture which they can keep in their portfolio or sell after a number of years to generate enough cash to develop other projects, added Ravon.
One major advantage of making such investments includes total control over costs, both for construction and later for property management. The downside is having to attract and retain a sufficient number of tenants. “This is particularly difficult at present because rents are low and owners have to offer retailers substantial incentives, which makes the initial investment less attractive,” she added.
But is this trend a threat to traditional developers? Definitely, says Sin, explaining that traditional developers can end up with no new locations to buy. “On the other hand, traditional developers don’t focus on only one retailer and they take into consideration all the aspects of developing a commercial center, aspects which aren’t always important to a hypermarket operator,” he said, adding that at the end of the day this competition is good for the market.
Moraru disagrees that retailers’ strategy to invest in their own projects represents a threat to traditional players and stresses that it all boils down to fiercer competition, which in turn is beneficial for the market. “Moreover, there are even partnerships, such as that of Carrefour and NEPI. Besides, hypermarket operators continue to rent space in projects developed by other firms,” she said.
As for how this trend will evolve on the medium and long term, consultants have differing opinions.
Ravon believes that on the medium and long run such investments will decline because of market saturation combined with competition from traditional developers – either new ones entering the market or the old ones resuming their business. This means that hypermarket operators will resume renting space or owning only the hypermarket areas in these projects.
Moraru thinks the trend will continue both on the medium and long term. “Although, to some extent, it was driven by retailers’ need to expand faster than the real estate market in general – and perhaps there will come a time when the two speeds will align – we believe that this development model will not be abandoned. Retailers have set up dedicated divisions or specialized companies, they have recruited teams and with this management model they now have a firmer control over the performance of the centers,” commented Moraru.
The three large hypermarket players – Carrefour, Auchan and Cora – are in full expansion mode and buying land for future projects, said Sin. “The most interesting case will be in Brasov where all three have announced large-scale projects,” he said.
And it is not only large hypermarket operators who are adopting this strategy. “At a smaller scale, this is happening with supermarkets. A good example is Mega Image which is developing small commercial galleries to complement the supermarkets’ product mix,” he concluded.“The same crisis that has led to good opportunities for land acquisition has prevented players from finding enough solid retailers with expansion plans of their own to fill these commercial galleries” Carmen Ravon, head of retail leasing at Jones Lang LaSalle. Business review Romania
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