Shopping centers reach saturation
After 20-year boom, no new construction in 2011
Posted: December 8, 2010
Galerie Harfa opened earlier this year with 49,000 sqm of space.
A shopping-center boom that was touched off in the Czech Republic two decades ago has finally wound down, real estate analysts say, and next year is expected to be the first since 1990 that no new centers will be built.
In 2010, total construction of shopping centers dropped to 124,000 square meters, including the completions of newly opened Galerie Harfa in Prague 9. In 2009, that total was 186,000 square meters, according to CB Richard Ellis, and the company expects zero shopping-center construction next year.
"Some cities are close to saturation, and some even beyond," Tomáš Beránek, commercial real estate adviser at CB Richard Ellis, told The Prague Post. "In some cities, a newer and better [retailing] scheme will [need to] replace the existing one because there is not sufficient demand for both."
Beránek added that his company expects pre-Christmas shopping to increase this year at shopping centers, but this year's numbers will be compared with difficult sales over the past two years owing to the economic crisis. Palladium Praha, which operates the Palladium shopping center on Prague's náměstí Republiky, posted a loss of 2.1 billion Kč in 2009 and a 746.7 million Kč loss in 2008.
The definition of a shopping center can differ between analysts and consulting companies, however. A report on the same retail sector released Dec. 7 by Cushman & Wakefield (C&W) gathered data only on shopping centers that exceeded 5,000 square meters and housed more than 10 rental units, a distinction that takes retail parks out of the equation.
Galerie Harfa opened with a total of 49,000 square meters, Nový Smíchov has 60,000 square meters, and Palladium has 39,000 square meters, according to CB Richard Ellis.
According to C&W's report, shopping-center construction reached only 76,000 square meters, comprising the Galerie Harfa and Chomutovka projects and an expansion at the Forum Liberec.
"We wanted to keep it comparable, so we focused on shopping-center development in case we wanted to publish a pan-European report," said C&W Head of Research Alexander Rafajlovič.
Both consulting companies agree, however, that next year won't see any new shopping centers, and the overall pace of shopping-center development has cooled now that the segment has been built out across the country. Instead, the future trends in retail development will likely focus on smaller projects.
"Smaller cities cannot support bigger shopping-center projects," Beránek said. "The next expected trend will be the return of retail into the centers of cities and towns."
Smaller cities with fewer than 50,000 inhabitants, according to Rafajlovič, will become the next target for companies that initially sought out the high-yield potentials of larger shopping centers. Smaller projects will cost less and take less time to deliver, with an average project length of approximately eight months.
"I think it's more suited for the climate; smaller projects allow you to start with less liquidity," he said.
The nearly saturated market has achieved reasonable success until now. Only a handful of shopping centers have had to close, but even in those situations, developers have been able to refashion the centers into different concepts.
"Only a few centers have failed, but even then a solution can exist, such the Tesco-Stodůlky building that is now used by XXXLutz," Beránek said.
A 25,000-square-meter Tesco location in Stodůlky, Prague 13, closed and was taken over by Austrian furniture company XXXLutz, which opened its first Czech location this past summer. Galerie Butovice (35,000 square meters), also in Prague 13, was repossessed by its lender, ING Finance, which is trying to remodel the center and sell it in a couple years to recoup the loan.
Projects that were started either in 2009 or 2010 are expected to be delivered in 2012, creating a "temporary pickup" in shopping-center development, Rafajlovič said, but retail development has for the most part caught up with western EU averages and won't return to its previous boom levels.
"Generally, the next 10 years won't be anything like the past 10 years, because the market is just more saturated," he said. "We won't ever see a development pipeline of that scale again nationally. Regionally, we might see a doubling of supply, but that will be a very regional story."
At the end of the first half of 2010, the Czech Republic had begun to catch up with EU averages, according to a C&W report. Per capita, the average area of Czech shopping centers had reached 191 square meters per 1,000 citizens and is expected to hit 198 square meters by the end of this year. EU-wide, the average is 231 square meters per 1,000 citizens.
In Slovakia, the average is 171 square meters and will hit 192 square meters at this year's end.
Claire Compton can be reached at
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