Bouwfonds study on Refurbishment as challenge to online

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A new report published by Bouwfonds focuses on the key role that refurbishment will play in enhancing the attractiveness of European ‘bricks and mortar’ retailing, in light of the advances made by the internet as a sales and distribution channel.

The study focuses on the Dutch Bouwfonds Group’s key markets of Germany, the Netherlands and France. In these three markets, the report says, nearly 50% of all lettable retail space is in need of refurbishment – but this offers attractive investment opportunities to those willing to look at optimising the sales effectiveness of these assets.

The study examined 859 shopping centres in the three markets with at least 5,000 sqm of lettable space, and which were either built or last refurbished before 2005. In Germany, this affects 303 shopping centres with a total lettable space of 7.2m sqm.

Jaap Gillis, CEO of Bouwfonds Investment Management, comments in the report that, “in order to prevail against online retailing, nearly all traditional retailers will have to adjust to the changed buying behaviour of customers, and become retailers with cross-channel sales strategies. Investors need to keep a close eye on this change.”

The study sees the mature European real estate markets as being saturated with retail space, hence the future lies in the refurmbishment and adaptation of existing shopping outlets. In particular, the study identifies four categories of shopping centre, and their relative exposure to online trade:

  • Large and very large shopping centres are particularly exposed to the challenge of e-commerce, since the tenant structure is very often largely dominated by textile retailers. However, the dynamics of such stores often provides counterweights and a range of attractive alternative tenants.
  • Medium- and small-sized shopping centres are less sensitive to the e-commerce challenge because of their ‘convenience’ character. This more flexible nature should help provide alternative tenants if online competition causes unforeseen vacancies.
  • Shopping centres in big cities very often house lots of businesses in sectors which are endangered by the online world. Nonetheless, given their high footfall and other attractions, they should be able to compensate for any fallout.
  • Shopping centres in smaller and medium-size towns have less dynamism to ward off the growing popularity of online retailing, and their product offering is very often in direct competition with online trading. These centres are particularly endangered, say the Bouwfonds researchers.

The report provides a useful summary of the effects of e-commerce on types of retail areas, categorising them in terms of ‘dynamism’, ‘sensitivity of shopping area’, and the ‘effect of e-commerce’ on the shopping area. It points out that four-fifths of total physical retail space is barely affected by e-commerce yet (flowers, opticians being good examples), but the overall mix in the tenant make-up is what will ultimately characterise the location. It is also useful in differentiating between centres that are seen as either ‘convenient’ or as a ‘shopping experience’, and how this can increase sensitivity to the online challenge.