EXPO REAL 2005 confirmed it: the invasion of shopping centers in Germany is continuing. The retail scene also remains very dynamic. The overall trend can be described with one word: expansion.

With 1,500 stores, 350,000 square metres of sales floor and 2.4 billion Euros in annual sales, the Douglas Corporation is a retail giant. The Hagen-based company with its seven chain store concepts Douglas, Thalia, Christ, René Kern, Appelrath-Cüpper, Pohland and Hussel are omnipresent primarily in German city centers. The figures are impressive; however, the Douglas Head, Dr. Henning Kreke, put these figures into perspective: “One million square metres of new sales floor are being developed in Germany each year – three times as much as our group operates today.”

The confidence in newer and bigger sales floor space has indeed remained unshaken – even though, according to the Federal Statistical Office of Germany, retail sales have not shown a real increase for over ten years, and have even declined since 2002. In 2004, retail sales sank by 1.6 percent, and the Hauptverband des deutschen Einzelhandels HDE predicts a further decline of 0.7 percent to 362 billion Euros in 2005. There has been, however, a contrasting development in terms of sales floor: according to the Bundesarbeitsgemeinschaft der Mittel- und Großbetriebe des Einzelhandels BAG, they actually increased from 108 million square metres to 112.8 million square meters, even during the difficult years between 2001 and the end of 2004.

Sources: Federal Statistical Office of Germany; HDE Forecast 2005; status April 2005, rounded values
Future visions for Essen: By 2009, Karstadt AG and ECE want to develop a new shopping and entertainment centre together, whose curvy façade should evoke memories of Marilyn Monroe in “The Seven Year Itch”.
Source: EHI-Shopping-Center-Planning List, Cologne; Status: July 1, 2005

Retail Real Estate as the Investor’s Darling
Thus, the average yield per unit area has decreased. Still, further investments are being made in retail real estate. The rate of savings is growing and investment pressure is high. All large fund companies want to increase the share of retail real estate in their portfolios. On top of that, there are the capital flows from other countries, where they are hoping for the end of the German downslide and are waiting for the right time to jump onboard.

The year 2005 was characterized by spectacular transactions: the British investors Dawnay Day Group and Hilco Ltd paid almost 500 million Euros for the 74 small Karstadt department stores. Curzon/IXIS AEW paid over 100 million Euros for the 21 Salamander store properties. For roughly 450 million Euros, the Canadian investor Ivanhoe Cambridge bought shares of mfi AG’s three shopping centers – Paunsdorf Center Leipzig, Zwickau Arcaden and Wilmersdorfer Arcaden. The theme Factory Outlet Center is also pepping things up in the market. The Designer Outlet Zweibrücken was just sold to the Belgian Trading Places SA. According to the previous owners Outlet Centres International OCI, headquartered in London, and a private German nvestment company, they received “more than 50 million uros.“ Several weeks ago, the first ground breakingceremony for the expansion of the outlet by 6,000 square metres to 17,000 square metres of total sales floor took place.

Without a doubt, shopping centers are causing the most turmoil in the German retail market. Meanwhile, according to the Cologne EuroHandelsinstitut EHI, there are 363 shopping centers in Germany with an average space of 31,360 square metres. This points to a mercurial increase since 2002 – back then, only 279 shopping centers existed. Still, compared to other European countries, Germany is only average in terms of shopping center density.

The migration of project developers into the city centers is evident. According to EHI, only 29 percent of shopping centers were developed in the city centers in 1996/1997. This share increased to 58 percent in the period from 2002 to 2005. At the same time, the development of shopping centers in the outskirts of town has declined from 13 to four percent. In short: the inner city location has been rediscovered, and more and more shopping centers are being developed there.

Great Number of Planned Shopping Centers
This trend was apparent at EXPO REAL 2005. Many stands had bright, complex models of new inner-city shopping centers. The project developer AM Development presented a new center on the Dresdner shopping mile, the Prager Straße, which covers roughly 45,000 square metres, and plans to open its doors in 2008. AM Development already wants to complete the Forum Duisburg, with 57,000 square metres, by 2007. The opening of an 18,000 square-metre center in Würzburg has been planned in 2008. The Franconian capital on the Main is so popular that another company is hoping for a center location with mfi AG. The company from Essen has taken on a great deal over the next four years. New properties are planned in Berlin, Erlangen, Pasing and Düsseldorf. Furthermore, the 70,000 square-metre Paunsdorf Center Leipzig, whose management was just taken over by mfi AG, will be repositioned. mfi AG currently operates eleven shopping centers. “In ten years, that figure will be at around 30,” predicts Wolfgang Seifert, Executive Board member of mfi AG.

The Hamburg-based ECE has long exceeded this figure. The market leader already manages 82 shopping centers, and at the exposition, Managing Director Klaus Striebich presented 13 more locations to potential renters, including locations in Hanover, Braunschweig, Hameln, Heilbronn and Oldenburg. FrankfurtHochVier, an initiative of MAB Projektentwicklung in the banking hub, is another large and highly ambitious project. The first ground-breaking ceremony just took place and approximately 800 million Euros will now be invested by the fall of 2008; a large part will be invested in 48,000 square metres of sales floor. With approximately 40,000 square metres, the so-called Overseas Quarter, which will be turned into a shopping center of the new Hamburg city district, HafenCity, boasts similar dimensions. The opening is not planned until 2011, but it has already been presented at EXPO REAL. Much earlier than that – early next spring – the Berlin Main Train Station will be opened, where the Deutsche Bahn will launch a 15,000 square-metre shopping area. A comparable project is planned in Dresden, where 12,000 square metres of sales floor will be opened at the same time as the new train station three years from now. The Portuguese center operator Sonae Sierra also wants to take advantage of the strong frequency of a train station. After years of hesitation, they will finally start this coming year in Dortmund. The plan is to open 36,000 square metres of sales floor in the spring of 2009. The company plans to open its similarly large prestige project “Alexa” on the Berlin Alexanderplatz two years before that.

Franchises on Expansion Course
The list of projects proves it: The expansion directors of the large retail companies – driven, of course, by the ambitious goals of their superiors – had a tight schedule during the three exposition days in Munich. Despite generally weak sales, the development in retail is still very dynamic. Numerous chain stores are pushing forward with their expansion. Particularly the clothing chains are continuing on their growth path. But there is unremitting movement in the other retail branches as well, and more and more new players are testing their chances.

This could not come at a better time for shopping center developers. The retailers, however, are not simply following them blindly; most still prefer a freestanding store in a prime location, primarily for their brand presentation. If they do decide on a center, their standards are very high. These standards include a modern retail space, a balanced industry mix, professional center management, as well as powerful marketing. Of course, the location must also be perfect, there must be enough parking, and accessibility must be optimal.

Retailers are generally skeptical about the endlessly growing amount of sales floor space. The larger selection of locations increases the probability of choosing the wrong one. Moreover, closed and isolated systems could become a threat to the traditional shopping locations, and they might take the shirts right off their backs. In an expert discussion with retailers at EXPO REAL, Dr. Marcus U. Hüttermann, Head of Expansion at the Douglas Corporation, painted a clear picture of this skepticism and warned of too high spirits: “Every project developer and every city should think twice about whether a particular shopping center is truly necessary.”

Impressions

Prominent elaboration on Moscow’s projects: Yuri Rosliak, First Deputy Mayor of the City of Moscow.		Not every handshake was a greeting…
The internationality of EXPO REAL was not just demonstrated by these flags.		… sometimes it was the final seal to a partnership or business deal.
Serbia’s President Boris Tadic invited guests to the reception at the stand of the Vojvodina region...		Where else do landmarks lie at a woman’s feet?
Discussions as far as the eye could see at EXPO REAL		Munich City Planning Councillor Professor Christiane Thalgott, Chief Planning and Building Director of Hamburg, Professor Jörn Walter, and Guy Perry, Investment Environments with Jens Friedemann, Frankfurter Allgemeine Zeitung, discussed the future of the city.