Analysis: After the M&As what next for shopping centres?

4th January 2018

Two major retail property mergers were announced at the end of 2017, and they are set to support the continued evolution towards shopping malls as leisure destinations in the year ahead. By Ben Sillitoe

Westfield London

Amidst the major retail property merger and acquisition (M&A) announcements at the tail end of 2017 were further commitments towards evolving shopping malls into leisure destinations that offer much more than just retail space.

French company Unibail-Rodamco’s proposed $25bn acquisition of Australia’s Westfield Corporation, and the £3.4bn UK deal for Hammerson to take over Intu, bring significant market consolidation, but they should also help drive new ideas within their respective global property portfolios.

Aside from the major commercial potential and new management structures they bring, the protagonists are confident the combined expertise brought together by the mergers paves the way for innovative thinking and a fresh approach to retail property.

Shared expertise

Both Hammerson and Intu have been rapidly developing their organisations to suit consumer behaviour that is increasingly influenced by the digital world, launching a plethora of mobile apps and games in an effort to better engage and inform visitors. They have also invested heavily in events.

In their joint statement, the companies said the proposed large group would be able to “draw on its combined consumer knowhow and apply both companies' expertise in events, customer service and digital to drive footfall, delivering highly productive space for retailers and attractive destinations for consumers”.

GlobalData senior retail analyst Sofie Willmott notes: “We expect the combined group to prioritise supermalls development, enhancing the locations to appeal to shoppers looking for product and retailer choice alongside an exciting food service and leisure offer.

“As clothing & footwear retailers focus on supermalls to create large-scale, experience-led stores, physical retail spend will move away from town centres towards destination shopping centres ensuring supermalls space is hot property. The proposed deal will net the group a stake in almost 60% of all UK supermalls space making it a force in the retail landscape, well placed to benefit from retail spend shifting across locations.”

Out-of-town shopping malls’ switch of focus in the last decade has seen an increase in upmarket food courts, restaurants, fast food outlets, and bars, as well as more cinemas and flagship retail stores placed alongside a traditional mix of mall retailers.

According to Cushman & Wakefield’s The Global Food & Beverage (F&B) Market report, released in summer 2017, the space shopping centre landlords dedicate to cafés, bars and restaurants was traditionally less than 10% but, in some of the newer schemes it is now typically 20%, or in some cases 30%.

European retail property company ECE says turnover from F&B retailers in its centres increased by 54% between 2010 and 2015 alone, highlighting the demand for non-shopping services.

Assessing the recent deals, Ken Gunn, managing director of retail business consultancy FSP, says the most radical change in the F&B shopping centre mix will most likely be seen in Unibail-Rodamco’s European properties, thanks to its Westfield acquisition.

“In many respects, Westfield is a long way ahead of what is going on in Europe – F&B for example is much more fragmented on the continent,” he explains.

“F&B development in shopping centres will be the next big thing in Europe, and having Westfield’s skills will provide a major advantage to Unibail. In design terms we’ll see major improvements in food courts and entertainment areas in line with Westfield’s strengths.”

New look malls?

The clearest change we can initially expect to see from a design perspective after the deals complete will be the Westfield name appearing across Unibail-Rodamco’s sites, which include Les Quatre Temps in Paris and Mall of Scandinavia in Stockholm.

“The Westfield brand, the strongest in the industry, will gradually be deployed across Unibail-Rodamco’s flagship assets,” said their joint statement, which also labelled Westfield “an iconic brand”.

Westfield has gained a reputation for its experience-led shopping destinations. For example, in 2016, global technology company Samsung attracted 125,000 visitors to a pop-up studio located within Westfield London White City in just two and a half weeks.

The space was used to promote a range of new products, and the success of the part-time tenancy was used as an example by Westfield’s chief marketing officer Myf Ryan for consumers’ growing appetite for immersive shopping experiences.

Charlotte Pearce, retail analyst at GlobalData says: “With consumers favouring destination shopping locations which appeal to shoppers’ desire for a social and lifestyle experience and Westfield setting the bar in terms of focus on overall experience, this is a beneficial move for Unibail-Rodamco.”

During the flurry of M&A activity in the build-up to Christmas, other major players in the UK could have been forgiven for feeling left on the outside looking in. But the likes of British Land and Land Securities have been developing their own paths towards more experience-led shopping centres over recent years.

Land Securities signed a deal with SMG at the start of 2017 to allow the tech company to monitor and analyse customer satisfaction via a range of surveys and engagement tools, while British Land has made a concerted effort to strengthen its consumer insights team.

Ben Dimson, head of retail business development at British Land, says changing customer expectations, as well as the growing popularity of online and F&B, led the company to adopt a consumer centric approach, as opposed to a focus on tenants.

“They are important because they pay the rent but if we can get things right at a consumer angle then hopefully the retailer side should benefit,” he notes.

It's a consistent view held across the retail property sector, and one resulting in the growth of additional shopping centre services. Top of the to-do list following the latest M&A activity looks set to be optimising the mall as a day-out destination.

With the increased buying power resulting from the recent deals, FSP’s Gunn says there is a strong case for modernisation at some centres. He cites Intu’s early generation regional malls Merry Hill and Lakeside as prime examples where development is due.

“In terms of design and investment, it means those in the shadow of some of these assets will have to improve their offer as well,” Gunn argues.

“If you’re Bluewater, for example, and you’re maybe facing a renewed challenge from Lakeside, then you’ll need to have a clear goal strategy and resist Lakeside’s attempt to draw some of your customers back. You need to continue to move forward because the customer is well ahead.”