A city center belongs in the center, not just next to it
Integration begins during project development, write Matthias Böning and Christof Glatzel of Böning & Glatzel in the second part of the series “Das städtische Einkaufszentrum”. Using various categories, the two former mfi board members explain why one shopping center is successful and the other not.
Why do new openings such as Skyline Plaza in Frankfurt or Höfe am Brühl in Leipzig end up at the end of the ranking at the Performance Report (SCPR) shopping center? Why is the Alexa among the top 20 in Germany and the Loop5, a center of the same developer, among the last 20? Why are the Pasing Arcaden in Munich taking off, while the Mira is stubbornly stuck at the bottom of the table at what appears to be the same top real estate location in Munich? We will try to answer these questions by describing the essential factors that determine the success or failure of a center.
Competition and timing: Together, these are decisive success factors, as can be seen with megamalls and hybrid malls on greenfield sites. Many of the mostly one-storey old battle horses such as the Main-Taunus-Zentrum, the Centro Oberhausen, the Ruhrpark in Bochum or the Citti-Parks in Schleswig-Holstein have free parking and sometimes their own railway connection. They have been introduced to consumers for years as full-range suppliers and substitute inner cities, dominate the trade in their respective regions and constantly adapt to the competition. The Loop5, which for a long time would probably have been the last Grüne-Wiese-Megamall, developed twenty to thirty years earlier, had better chances. Surely it would not have been a problem to get an important hypermarket as a food anchor. Nor would the centre have had to share a bad entrance and exit in second row behind other specialist stores, as is now the case. In 2010, however, the competitive situation in the retail sector was quite different. Even the interior design that was innovative for Germany at the time cannot make up for this initial disadvantage.
The Skyline Plaza, which was originally planned to become an Urban Entertainment Center, had more than 15 years of political wrangling behind it when it opened, and with a sales area of 38,000 sqm (i.e. about 50,000 sqm of rental space) it was considerably smaller than originally conceived (60,000 sqm). If it had been opened ten years earlier with free parking spaces and a large consumer market, it would have come closer to a Main-Taunus-Zentrum and could today compete more easily against the basically too close Frankfurt city centre.
Höfe am Brühl, which opened in 2012, also had a timing problem. The Paunsdorf Center, also operated by mfi but owned by Ivanhoe Cambridge, with over 100,000 sqm of space, was originally to be repositioned in 2009. However, the financial crisis put a stop to the owner’s plans. Ivanhoe repeatedly postponed the start, and so the new Paunsdorf Center was launched at the same time as the 45,000 sqm of rental space at Höfe am Brühl. Not easy to digest if the ECE-operated promenades in the main station next door bind the tenants with their competition clause. Conclusion: It is also important to be ahead of the competition.
Marketing, service and experience: these are the success factors, especially when competition and timing make it difficult to launch in saturated markets. The launch phases of large shopping centers are taking longer and longer, but with their marketing budgets, centers have an important competitive advantage that, combined with service and experience, secures the necessary frequencies and revenues. Precise analyses of the actual catchment area and the knowledge of why consumers do not come to a center and how to change this are more important than many alibi events.
The Regensburg Arcades opened in 2002 prove that service and targeted customer approach can be successful. Despite the dominant Danube shopping centre, an initial lack of connections to the railway station and a location away from the city centre, these arcades have developed into a stable centre with potential for expansion. The Mall of Berlin is also focusing on service in order to compensate for the timing and location disadvantage in the tough Berlin competition. Conclusion: A difficult start is not yet the end of all dreams.
Location and accessibility: This is not only about visibility, but also about recognizability. A shopping centre that hides behind museum architecture loses important 10% to 15% in customer frequency, turnover and ultimately rent. A district centre, a city centre, a local supply centre belong in the centre and not just next to it. All of them need an easy to find and easily accessible car park connection and an excellent connection to the public transport system for the region. Even a station that has been postponed by 50 meters due to subway construction work costs 10% to 15% in turnover and tenant satisfaction, as we have found out sorrowfully. Conclusion: Position errors are irreversible.
Integration: Often politically invoked but often not achieved. Integration already begins during project development. It ensures that a center finds the approval of citizens, architectural advisory boards, the press, local retailers and ultimately politicians. A clear majority is required and a referendum can be very helpful for this. mfi has experienced this with the Erlangen Arcaden: two elections won, an active art advisory board, a local architect involved in the planning and a committed mayor. In Erlangen, however, the connection with two entrances to the city centre as well as the admission of local tenants to the centre were also suitable. Even the terminus of the bus in the city is called “Arcaden”. These points are important for the development of city centres and inner-city shopping centres in medium-sized cities (over 100,000 inhabitants).
But integration can also be lost. Let’s take the legendary Kö-Galerie in Düsseldorf as an example. An icon of the 1990s in Germany, positioned like Königsallee itself – high-quality and in keeping with Düsseldorf’s zeitgeist also culinary. Little has remained of this high-street feeling. The multi-storey car park falls behind the new Kö-Bogen, the luxury shops are too small and arranged over several floors with inner stairs. Instead of a gastronomic experience one finds dm and Rewe in the basement. The integration with the Kö is unclear, in contrast to the more consumer-oriented Schadow Arcades, which impress with their excellent pathways and good central connections. Conclusion: Knapp neben is significantly less successful.
Positioning, rents and size: When I (Matthias Böning, ed.) switched from a construction company to the center developer mfi in 2002 and asked the letting director why he was sure that he would let 100% of the Riem-Arcaden in Munich (which he did three months before opening), I received the answer that of 180 expanding chain stores in Germany, all must be interested, because otherwise there would be hardly any expansion opportunities for them. When I was asked why we only planned a toilet facility on 50,000 sqm and why there was no customer information, I was told that customers would learn the route connections in no time at all. The main thing was the connection to the parking garage and the location of the anchor tenants.
2002 was not long ago. Competition, service and customer analysis have taken on a completely different significance. Today, inconsistent positioning of a center usually leads to vacancies sooner rather than later. No mono-brand stores like Gant and Tommy Hilfiger are suitable for a district centre or local supply centre. To achieve this, the local supply offer must be fully implemented.
Megamalls have to be full-range stores, international and a place of experience. With hybrid centers, all high-performance assortments belong in the center plan. Rents that are too high and not adjusted to sales also lead to bankruptcies in these centers in the long term.
Dominant and large centers are less susceptible to market changes than small centers. However, some district centers and inner-city centers in medium-sized cities are now also too large, as former anchor tenants on the first floor, such as bookstores and sports outlets, no longer play this role. Conclusion: Market positioning, rents and size must form a consistent unit.
The outdated internal structure: In countless centers of the 1990s and 2000s, the popular ice cream parlour can be found in the middle of the first floor. With the introduction of the smoking ban and the emergence of other espresso providers, this rental concept has become obsolete. A ground floor with outdoor gastronomy to the south or west side is in demand. Gastronomy distributed throughout the center is an old hat. The food court has also arrived in Germany.
Decisive failure factors are the storey structure, too few shops on the individual levels and the misconception of city planners that small, open centres – draughty and rainy – work in Germany in the high-turnover winter half-year. This is achieved exclusively by the megamalls that replace the inner city, such as the Ruhrpark or the Main-Taunus-Zentrum
Sevens in Düsseldorf and MyZeil in Frankfurt showed that even the connection of the main entrance of a city centre to a top shopping street is not enough to attract customers to the first, second or third upper floor in their first years of life. Sevens has now found the right concept after a lot of financial depreciation and a change of ownership. Saturn completely occupies the upper floors, the expensive fashion matching the Kö is only to be found on the ground floor, in the basement a clearly visible noble food court shines in keeping with Düsseldorf. Conclusion: Mostly the ground floor and the basement are core, but the first upper floor is opportunistic. Centers with two levels have a clear advantage over three- and multi-storey buildings.
The wrong owner and too little capital: Adjustments to old centers cost money, even if the retail tenants themselves bear most of the cost of their shop fittings, even in the case of extensive conversions. Owners who cannot raise additional capital due to a fund structure, who slavishly stick to old Excel business plans or who have too long and complex coordination processes are the real losers of change. These problems can be found with German closed-end funds as well as with international pension funds or private equity investors. The result is immediately negative: the devaluation follows in the end, the sale and a third party do it. Best example: the Ruhrpark. It now has the right owner who consistently realises the opportunities. Conclusion: The SCPR should evaluate owners instead of center operators.
Restriction of product range and Internet: Imagine a law prohibiting Internet trading on Sundays and Zalando switching off order acceptance on a regional basis if the share of shoe sales on the Internet in the catchment area of a city centre has risen above 10% (usually the magic redistribution limit that makes the approval of shopping centres more difficult). Nonsense and unrealistic? Reality in the development plans of our cities. It takes ten years to draw up a B-plan defining the size and assortment of a centre. We wait ten years before making ridiculous adjustments in five years at the earliest. Compare that with the speed on the Internet! The retailers have long since made up their minds: Their strongest stores are being built on the net and anti-shopping centre books such as “Attack on the City” (Attack on the City, edited by Walter Brune, Rolf Junker, Holger Pump-Uhlmann, Düsseldorf 2006) belong in antiquarian bookshops. The strongest proponent of the shopping-free Sunday is the on-line trade. This competitive disadvantage of the entire stationary trade must be offered as fast as possible Paroli. Conclusion: Heads of planning, mayors and politicians, rethink!
The authors: Matthias Böning and Dr. Christof Glatzel were board members of the center developers mfi and mfi/Unibail-Rodamco respectively. They founded Böning & Glatzel in 2014. The company advises companies with retail portfolios and develops retail properties.
Published on 6.8.2015 in the Immobilienzeitung.
Appendices:
150806 IZ Mall Categories
