CANNES, France — Though some visitors dropped out due to security concerns in the wake of the Paris terror attacks, the Mapic retail real estate fair was a hive of activity, with developers and retailers declaring themselves bullish about expansion.
Attendance at the fair, held in Cannes from Nov. 18 to 20, was down 3.5 percent to 8,100. Extra security measures were in place throughout the event, held just days after the attacks that killed 130 people in the French capital.
Mapic hosted 470 new brands, including a significant number of U.S. companies, many of which were won over by the event’s convivial atmosphere.
“It’s a less pressurized, relaxed way of sharing ideas and meeting people with whom you expect to form long-term relationships,” said Christopher Conlon, executive vice president and chief operating officer at Acadia Realty Trust.
With the U.S. being the country of honor at this year’s edition, opportunities for expanding into American cities were high on the agenda, despite the continued strength of the dollar and subsequent drop in overseas tourism.
“Everyone is interested in coming to the States, for the most part — it’s just a matter of timing,” said Jedd Nero, principal and executive managing director retail services at Avison Young. Conversely, he found the fair provided a useful snapshot of what’s happening in the rest of the world.
“Just like the United States, things are growing. The markets are expanding. There’s new development and there’s a lot of exciting things happening around the world, so although New York — we’ll certainly say — is the best place on the planet, there are other areas around the world that clearly are fascinating,” he said.
Indeed, exhibitors ranged from fellow U.S. firms such as Simon Property and Kimco to France’s Unibail-Rodamco, China’s Wanda Group and Nigeria’s South Energyx, to name just a few. With so many promising markets to choose from, advisers cautioned retailers against rushing to the States.
“For international retailers in the U.S., there are more failure stories than success stories,” said Jorge Lizan, managing director at Lizan Retail Advisors. “They think that going to New York is the solution. Not necessarily. For some brands it is, but for other brands, it is not. The turnover is really very big.”
Among the clients Lizan was advising at the fair was Brazil’s Grupo Soma, which is seeking to establish its women’s ready-to-wear brands Animale and Farm overseas.
“New York is our dream for Animale,” said Marilene Araújo, director of expansion at Grupo Soma. “It would be great if I could be on Fifth Avenue or in the Meatpacking District, but it’s very risky. We have to make our mistakes first in less costly markets.”
During a conference on luxury co-organized with WWD, Webber Hudson, executive vice president at Related Urban, highlighted the challenges and opportunities facing developers in New York, where Related plans to unveil its mixed-use Hudson Yards project in 2019.
“Whether it’s Madison Avenue or Fifth Avenue, international tourism on those high streets is off between 15 and 20 percent. In dollar spending, it’s pretty much commensurate with that,” he reported.
“At Time Warner Center, a project that we developed 12 years ago, we’ve seen our sales off 3 to 4 percent. And I think the story that’s embedded in that is [that] one of the traits that is embedded in all our mixed-use projects is establishing a sense of community, and more than just retail shops, creating an environment,” Hudson said.
Related expects 50 percent of visitors to Hudson Yards to come from outside the Tristate area, so services will be a key element in guaranteeing the success of the project, he said. This includes making customers feel safe by providing multilingual concierges, for instance.
“Unfortunately, security is an issue everywhere now. It’s not Paris, it’s not London, it’s not just New York. It’s going to be everywhere and anywhere at any given time,” Hudson said.
Casandra Properties is betting that tourists flocking to New York City will power its Empire Outlets project on Staten Island. “It used to be sightseeing, but now the number-one reason that people come is to shop,” remarked John Pitera, managing director at the company. The outlet center, which will be located next to the Staten Island Ferry Terminal and the planned New York Wheel attraction, is set to open in 2017.
Acadia, meanwhile, is investing in neighborhoods that are less reliant on visitors. “As the dollar improves against other currencies and as the world gets less safe — unfortunately, like we’re seeing — tourism might be affected, and if we can own in 24/7 live-work-play environments, they feel like solid bets for us,” Conlon explained.
Europe, another top tourist destination, also remains a highly attractive market for developers, despite modest growth in its domestic economies.
“Every major European city, I feel, is like a hot spot,” said Melissa Gliatta, executive vice president at Thor Equities.
With properties in Paris, Cannes, London and Madrid already in its portfolio, Thor recently revealed it was acquiring its first asset in Italy, an 85,000-square-foot luxury retail, office and residential property at 26 Via della Spiga in Milan that houses a Dolce & Gabbana store.
Gliatta was confident that Paris would remain a popular destination even after suffering two terrorist attacks in the span of 12 months. “I think people’s love, globally, of Paris is strong, and I don’t think that it will suffer. I mean, we saw what happened in January with the attacks then, and then you saw how quickly Paris rebounded,” she noted.
Designer outlet group McArthurGlen revealed that it plans to expand its gross leasable area [GLA] by 50 percent to 9.7 million square feet by 2019, with eight expansions and eight new centers in Western Europe. The group saw tourism sales quadruple between 2010 and 2014, with China accounting for more than a third of all tax-free sales.
“We like what we know,” explained Adrian Nelson, group leasing and client management director at McArthurGlen Group. “The fluctuations in currency have such a big effect that there are lots of risks to doing stuff outside of the EU. We’ve looked and we keep looking, and it’s not to say we won’t do it, but there are good reasons for not going outside,” he added.
London continues to be a magnet for investors, with Westfield Europe and Hammerson teaming up on a major redevelopment project in Croydon, south of the British capital, and Hammerson separately planning to double the size of its Brent Cross shopping center in north London.
Meanwhile, Westfield is forging ahead with its shopping center on the outskirts of Milan, which it hopes to open by the end of 2019. John Burton, head of development at Westfield Europe, praised the government of Italian Prime Minister Matteo Renzi for creating a more business-friendly climate there.
“They have a much greater handle on the whole corruption issue. Until they actually got on top of that, which they largely have now, it was very hard to put words into action. And I can tell you, Westfield wouldn’t be putting its money into this project, certainly at this level, unless we had confidence on all of those fronts,” he said.
The Australian developer is investing 1.4 billion euros, or $1.48 billion at current exchange rates, in developing what it is billing as Italy’s largest retail, leisure and dining destination. “It will be the best center in Europe,” Burton said. “The luxury world in Milan is aspirational, and you can’t serve up enough to meet people’s aspirations.”
Among the other regions in the spotlight was the Middle East, with a host of developments in the pipeline in countries including the United Arab Emirates, Qatar, Saudi Arabia, Egypt, Oman and Iran.
One of the projects presented by UAE-based Majid Al Futtaim was its redevelopment of the Mall of the Emirates in Dubai, where Apple recently opened its first store in the Middle East.
“It’s definitely the land of opportunity. The markets that we are in present fantastic growth opportunities for both local and international retailers, and this is something we’re experiencing every day,” said Alain Bejjani, chief executive officer of Majid Al Futtaim.
The population of Dubai alone is set to grow from 3.2 million to 5 million within the next 10 years, according to Davide Padoa, ceo of Design International. The London-based architecture company is designing two Avenues shopping centers developed by Line Investments & Property LLC, a division of Abu Dhabi-based Lulu Group International, in Dubai and Sharjah.
“The reason why there are more square meters of lettable area per capita in the Middle East is that the frequency of visits to the same shopping centers is double the one that you find in Europe,” Padoa explained. “It is true that if you look from outside, there’s a great competition, but then if you study the retail patterns in the area, in reality there is a huge under-offer of malls.”
United Developers, a group of four Qatari investors, is banking on demand soaring in the run-up to the 2022 FIFA World Cup.
It is investing $1.5 billion into the Place Vendôme shopping center in Lusail City near Doha, to be located less than two miles from the planned Lusail Iconic Stadium, which will host the opening and closing games of the soccer tournament.
“We know that when we open, we’ll open in a competitive environment, but that competitive environment also creates critical mass, which is good,” said Sean Kelly, project director at Place Vendôme.
The mall, scheduled to open in the fourth quarter of 2017, is typical of the region’s outsize vision, with 2.47 million square feet of GLA and around 400 retail outlets. “Countries in the Middle East don’t have this blinkered view of development. They want to make it ambitious, they want to reach for the stars,” Kelly noted.
Even Iran is opening up. Tat Group made its debut at Mapic with Iran Mall near Tehran, the first project of its kind as the country prepares to import previously restricted goods and receive greater foreign direct investment following the impending relief of nuclear-related sanctions.
Samir Goshayeshi, ceo of New Prestige Holding and Investment, which is not involved in the Iran Mall project, said more than 300 shopping centers are set to open in Iran in the next three years, although he predicted only a fraction of these would survive.
The entrepreneur, who imports and distributes fragrances and cosmetics — which were not affected by sanctions — and owns the Safir chain of beauty stores, is seeking foreign partners to open his own malls.
“We don’t have the culture of fashion and luxury, so we need to go into joint ventures with companies that are ready to come to Iran, who are ready to invest and bring their know-how,” he explained.
Goshayeshi is confident that brands will soon be flocking to the Iranian market.
“I think not only are they ready, they are making a queue,” he said, pointing out that crises in Russia and Brazil have made those markets less attractive, while India still has significant barriers to entry and China is becoming more challenging. “Any market like Iran is welcome,” the businessman said.
Andrea Abrams, principal — international at Time Retail Partners, is advising clients like affordable fashion brand A’gaci on their international expansion. For her, the watchword is caution.
“The real challenge nowadays for all of us is finding the right partner, because it has to be the right fit. We like to say it’s like a marriage, and we spend a lot of time getting to know each other and getting to know the brand,” she said.
In China, luxury brands are set to continue downsizing their retail presence.
Architect and urban planner Li Fang said Louis Vuitton, her former employer, plans to close 30 percent of its existing stores in Mainland China by the end of 2016, which would leave it with 36 boutiques.
Andrew Phipps, executive director EMEA research and consulting at commercial real estate services firm CBRE, said many firms expanded too rapidly into the Chinese market, perhaps failing to realize that more than 70 percent of Chinese luxury consumer spending takes place overseas.
“We believe in the next year, the focus will be on developing in the U.K. and Europe, and the rest of America, so that brands will expand in those markets as opposed to directly expanding more into China,” he said at the presentation of CBRE’s report “Global Luxury Retail: A Divergent Market.”
However, not everyone was ready to close the door on China.
“It’s not for the faint of heart, but I’m a believer in China. It’s just too big, it’s a consumer society that is growing every day,” said David Zoba, chairman, global retail leasing board at Jones Lang Lasalle, who previously steered the real estate strategy for Gap Inc.
“They really like brands. Now, establishing a brand over there can be tough. That’s why the Gap has done a good job, and they’ve done it in part by creating a critical mass. And that takes staying power and deep pockets, because you can’t do it with a few stores in Beijing and a few in Shanghai,” he added.
Beyond planting flags in new territories, brands were looking to refine their offer in order to combat the growth of online sales, whether by adding more food and beverage [F&B] brands, pop-up stores or so-called retail-tainment concepts.
David Scurlock, vice president at retail design firm CallisonRTKL said the rise of the notoriously fickle Millennial consumer was forcing retailers to rethink their strategies. He pointed to New York boutique Story, which changes its design and merchandise every four to eight weeks, as an example of an innovative concept in step with the times.
“It’s what we’ve been trying to push as an idea for retailers to think about: A commitment to change, because retailers are so risk-averse. They don’t ever want to experiment, because they’re concerned that if you fail, then it looks like you’ve lost your edge,” he said.
Iain Mitchell, U.K. commercial director at Hammerson, hoped restaurants and F&B would eventually account for 15 percent of space at the revamped Brent Cross center in London, versus 5 percent at present.
“People are not interested in just shopping anymore. Those days are gone. This is about delivering an experience for them,” he said.