The shopping centre European market in the post-covid19 era

Reading various articles on the shopping centres segment shows that this asset class is in irreversible crisis, with more than one commentator questioning their future. Causes contributing to the problem in the Real Estate sector include an increase in online sales and damage to the Covid-19 pandemic, which has been causing for over a year.

Shopping centres have suffered (and are still suffering) from prolonged periods of closure, putting both landlords and tenants in serious difficulty.

I have been working in this sector for 25 years, and I am a keen student of the dynamics of shopping centres; despite the difficult times, I do not think that this market is in its terminal phase. The "physical shop" trade will not be supplanted by e-commerce but will integrate with it. Shopping centres will maintain, and even strengthen, even more, when the pandemic is defeated, their role as places of social aggregators.

It is my opinion that the "shopping centre product", developed for decades in an overly standardised way, must change, innovate and adapt to the needs of a market that has evolved and is highly segmented.

As the Greek philosopher Heraclitus wrote, “Pánta rheî” or “everything moves and nothing stands still”.

However, what does the shopping centres market need to do to become an attractive asset class again for customers and not least investors? It will undoubtedly have to deal with some painful consequences of overdevelopment that has not always looked wisely to the future.

As is the case in the evolutionary process of the animal world, only shopping centres that 'have the fundamentals' will be able to look to the future with confidence. And what are these fundamentals? First and foremost, the location.

Too many malls have been developed in areas where the primary catchment area (i.e. the population's density within a ten-minute drive) is too low compared to their actual needs. Unfortunately, these malls will have to be partly reconverted by limiting the retail offer and, perhaps, where the conditions are right, reconverting parts of the commercial structures into "last mile" logistics areas, into community services, and accommodation facilities. They will have to become "hybrid products". Otherwise, they will die because their life cycle is over (a bit like what happened to the old Blackberry concerning current smartphones).

Other fundamentals that will determine the future of this asset class will be:

The primary and secondary roads. i.e. the possibility for customers to get there without a lot of hassle and loss of time.
A merchandising mix in which the various product segments can be complemented by innovative services (e.g. smart working areas).
A less standardised property management approach aims to use the latest technological tools to understand who the customers are and what they want. I would talk about a property business that creates an “ad hoc” strategy for each shopping centre.
And a point of great importance: making the most of the relationship with the tenants. They are the real wealth of the centre. The managers' marketing activities, the refurbishment measures in terms of sustainability, must aim to increase tenats’ turnover and reduce service charges.

We will have fewer but better shopping centres, which is not necessarily a bad thing:

And I am confident that a market made up of excellent and reliable products (for customers, tenants and landlords) will play a significant role in real estate for a long time to come. It is only through this "selection of the species" that shopping centres will become attractive to investors again, as they are considered, unlike today, a safe asset class with attractive returns.