The Shopping Centre Handbook 4 - Deloitte United States · Shopping Centres Density Breakdown: 6 Spanish provinces with room for development of quality GLA or refurbishments / repositioning

@ 2019 Deloite Financial Advisory1 of 31

The Shopping Centre

Handbook 4.0The Future of Shopping Centres

Spain 2019

Financial Advisory I Real Estate

February 2019

@ 2019 Deloite Financial Advisory2 of 31 @ 2019 Deloite Financial Advisory

Global disruptive trends are changing the way companies are conceived.

Technological innovations, global connectivity, and robotics implementation, are reshaping the future for most industries, and specially for retail.

“Forecast for 2019 indicate that

the main retail KPIs will follow a positive trend, although consumption is expected to move towards a more moderate phase, in line with the general trend for the economy in Spain.

“The Shopping Centre market in Spain

shows signs of consolidation and maturity.

Nevertheless, there are still investment or repositioning opportunities in some locations. There are also alternative typologies with growth potential.

“

Since December 2017, 10 new shopping centres were opened, and 2 existing centres were repositioned. Many of these projects embrace the new shopping concept towards open spaces, green areas, and enhanced customer experience.

1.4m sqm of new GLA is expected to open by 2021.

“The High Street and Retail Park

markets are still part of the Core of most operator´s expansion plan. Both

categories are being redefined and are undergoing some relevant concept changes.

Investors are showing an increasing interest on the High Street market. The investment volume for this segment experienced an increase of 134% over the last year.

“Global disruptive trends are impacting

the way companies are positioning their business for the incoming years, and Retail industry is also being re-shaped by these changes.

Now the question is: how are global trends changing the future of shopping centres?

“Worldwide Commercial Real Estate

investment volume has decreased by 3% in 2018.

In Spain, the CRE investment volume has increased by 40% during the same period. This increase is due to Corporate deals, which represented a relevant share.

“


Global disruptive trends are changing the way

companies are conceived.

Technological innovations, global

connectivity, and robotics

implementation, are reshaping the future for most industries,

and specially for retail.

“

”


1The

FutureRetailof

“

i) Global Disruptive Trends

A constantly changing world

Deep changes are

being observed in social habits, consumption trends, and people’s lifestyle.

Technological innovations, global connectivity, and robotics implementing, are reshaping the future for most industries, driving them from a physical world to a phygital ecosystem.


1The

FutureRetailof

2019#1#2#3#4#5

#1#2#3#4#5

Top Companies moving from traditional business to phygital

ecosystem

2001

ii) Disruptive Trends’ impact on Global Economy

Top 5 Publicly Traded Companies (by Market Cap)


1The

FutureRetailof

v) Conclusions

Retail industry changing drastically:

• From physical world to phygital ecosystem.• E-commerce and Omni-channel strategy.

• Fast delivery and easy return system.

• Immediacy: customers demand agility and fast response to

their needs

• Big Data: anticipation to client’s needs

• Curation: customization of the client’s experience.

Technological disruption is widening the distance between services and goods:

• Many digital companies become “intermediary” between goods

and users: the possession is not as relevant as the “access” to goods.

• Examples: Uber owns no cars, AirBnb owns no houses, Amazon sells third party products, and Glovo has no restaurants.

All is about community:

• Users are the driver for these companies to success (i.e. Cabify could enlarge their car fleet because the number of users increased).


Forecast for 2019

indicate that the main

retail KPI will follow a positive trend, although

consumption is

expected to move towards a

more moderate phase, in line with the general trend for the economy in Spain.

“

”


2Main

EconomicDrivers

10.4%

18.7%20.1%

22.6%24.8% 25.7%

23.7%20.9%

18.6%16.6%

14.6% 14.1%12.9% 12.2%

1.1%

(3.6%)

-

(1.0%)

(2.6%)

(1.7%)

1.4%

3.2% 3.2% 3.1%

2.5% 2.2%

1.9% 1.7%

Spanish GDP: Y-o-Y Variation (%)

Spain Euro Area- 19

Unemployment Rate (%)

The Spanish economy growth has

experienced a gradual slowdown. After three years

of GPD growing above 3%, the

economy is entering a less

expansive phase in the economic

cycle. Nevertheless, international

community keeps placing Spain as

one of the leading economies

within EU.

Spain´s unemployment rate has shrunk to 14.6% in 2018. Reaching for the first time

after 10 year a figure under 15%.

“

“Source: INE, TradingEconomics, and IMF

ii) Spanish Economic Fundamentals

GDP growth and unemployment rate

Forecast

Forecast


2Main

EconomicDrivers

Consumer Confidence Index has experienced significant fluctuations during the las two years, explained by

the Catalonian political and social crisis, the international instability generated by the Brexit, and the current political uncertainty in the consolidation of the Spanish Government.

“

“During the last twelve

months footfall index has decreased slightly (0.2% on average) in accordance with the

uncertainty expressed by the Consumer Confidence Index. Nevertheless, the accumulated growth since 2012 is close to 4%. In addition,

average unitary prime shopping centres sales have kept the upward trend initiated

in 2012, with an increase of 3% between 2017-2018.

iv) Consumption Indicators

Consumer Confidence Index, and Shopping Centres Footfall & Sales

2008

57.31

2009

65.80

2010

71.22

2011

71.11

2012

49.82

2013

72.00

2014

83.45

2015

102.9

2016

94.9

2017

102.8

2018

98.3

x2CONSUMER

CONFIDENCE INDEX (2011-2018)

Annual Average(basis 100 in 2005) // Source: CIS

Footfall Index Y-o-Y var(%) and Sales €/sqm/yearSource: ShopperTrack & Deloitte

Consumer Confidence Index

Shopping Centres Footfall & Prime SC Sales

+4%FOOTFAL INDEX (ACC. 2012-2018)

(2.8%)

5.6% 5.9%

1.1%

(1.9%)

5.3%

20113,050

20123,041

20133,297

20143,441

20153,630

20163,738

20173,855


Indicators

@ 2019 Deloite Financial Advisory

Shopping Centres market in Spain shows signs of consolidation and maturity. Nevertheless, there are still investment or repositioning opportunities in some locations. There are also alternative typologies with growth potential.

“

”


3Key

PerformanceIndicators

Commercial densitylevels in Spain continue growing: From 2018 to 2019, 10

new shopping centres have been added to the Spanish total supply, increasing the Shopping Centres Density in 9 provinces.

ii) Shopping Centres Density Analysis

Spanish shopping centres quality assessment

Source: AECC and Deloitte analysis

“In spite of the high

density levels observed in some regions, a relevant share of total supply is considered low quality or obsolete.

The quality of the existing GLA must be taken into account to obtain a correct overview over the Spanish market. The analysis conducted by Deloitte concludes that only 66% of the total GLA is considered quality supply (including only shopping centres, and excluding other retail typologies).

“Álava493

Albacete309

Alicante320

Almería294

Asturias404

Ávila106

Badajoz212

Baleares102

Barcelona213

Burgos127

Cáceres118

Cádiz346

Cantabria195

Castellón208

Ciudad Real106

Córdoba158

Cuenca155

Gerona64

Granada271

Guadalajara276

Guipúzcoa299

Huelva172

Huesca117

Jaén82

La Rioja321

Las Palmas639

León297

Lérida40

Lugo292

Madrid369

Málaga385

Navarra305

Orense127

Palencia118

Salamanca188

Segovia138

Sevilla217

Soria283

Tarragona158

Teruel0

Toledo170 Valencia

313

Valladolid494

Vizcaya242

Zamora213

Murcia413

Zaragoza645

0 – 20%

20 – 40%

40% - 60%

60% - 80%

80% - 100%

Quality GLA over total Shopping

Centres GLA*(%)

50 - 150

150 - 250

250 - 350

350 - 450

450 - 550

>550

<50

Shopping Centres

Density* (sqm/1000

Inhab)(*) Excluding Retail Park, Outlets,

Leisure parks and High street.

(*) Excluding Retail Park, Outlets, Leisure parks and High street.


3Key


Many of the shopping centres classified as “low quality” are outdated, and have high vacancy rates.

The Density Breakdown

analysis identifies 6provinces with room for development of

quality GLA or refurbishments.

These provinces have a low quality supply, a population higher than 300k inhabitants, and metro areas above 140k inhabitants.

Shopping Centres Density Breakdown:

6 Spanish provinces with room for development of quality GLA or refurbishments / repositioning projects. “

“

ii) Shopping Centres Density Analysis

Spanish shopping centres quality assessment

Source: AECC, Deloitte analysis

0

100

200

300

400

500

600

700Alb

acete

Alicante

Alm

ería

Ála

va

Astu

rias

Ávila

Badajo

z

Bale

are

s

Barc

elo

na

Biz

kaia

Burg

os

Cácere

s

Cádiz

Canta

bria

Caste

llón

Ciu

dad R

eal

Córd

oba

La C

oru

ña

Cuenca

Gip

uzkoa

Gero

na

Gra

nada

Guadala

jara

Huelv

a

Huesca

Jaén

León

Lérida

Lugo

Madrid

Mála

ga

Murc

ia

Navarr

a

Ore

nse

Pale

ncia

Las P

alm

as

Ponte

vedra

La R

ioja

Sala

manca

Tenerife

Segovia

Sevilla

Soria

Tarr

agona

Teru

el

Tole

do

Vale

ncia

Valladolid

Zam

ora

Zara

goza

Good Quality GLA Medium/Low Quality GLA


3Key


Averageprime rents have grown in a regular basis since 2014.

The rental increase accentuated in 2015 and 2016, when the Spanish economy showed consolidated signs of recovery.

Nevertheless, after several years of relevant increases, the last 12 months growth shows signs of a more moderated trend.

“■ 0-50

■ 50-100

■ 100-200

■ 200-300

■ + 2,000

■ 1,000-2,000

■ 500-1,000

■ 400-500

■ 300-400

Unit Size Range (sqm)

iv) Key Performance Indicators

Average Prime Rents Trend

Source: Deloitte. (*) Average prime rents have been calculated only taking into consideration contracts signed each year.

Sample size of 3,380 contracts.

Average Prime Rents (New lease agreements)(€/sqm/year)*

80

104

66

89

52

62

40

55

32

49

29

40

22

32

16

27

1416

2014 2015 2016 2017 2018


3Key


Averageprime saleshave increased by 3.2% in 2018.

This increase, moderated compared to previous years’ trend, is coherent with the Retail Sales Index trend and other retail market indicators, which show a generalized deceleration, characteristic of mature markets.

“■ 0-50

■ 50-100

■ 100-200

■ 200-300

■ + 2,000

■ 1,000-2,000

■ 500-1,000■ 400-500

■ 300-400

■ Mean



Average Prime Sales Trend

Source: Deloitte.

6,476 6,505

4,644

4,955

3,483

3,884

3,022

3,940

2,615

3,404

2,367

3,353

2,5202,712

1,930

2,294

3,297

2014 2015 2016 2017 2018

(*) Average prime sales have been calculated taking into consideration sales reported on a yearly bases and each retailer surface area.Sample size of 4,536 contracts.

Average Prime Sales(€/sqm/year)*


3Key


Average Effort Rates *(%)

17.5%

16.2%

14.0% 13.9% 13.7%

15.3%

14.5%

12.0% 11.8% 11.7%

15.0%

13.3%

11.1%10.3%

9.9%11.5%11.0%

9.6% 8.2%7.9%

7%

9%

11%

13%

15%

17%

19%

2014 2015 2016 2017 2018

As retailers improved their average sales, effort rates have decreased progressively, since the effect of the average MGR growth is not sufficient to offset the good sales performance.

The increase in retailer´s turnover has surpassed in relative terms the increase in Minimum Guaranteed Rent (MGR).

“

Source: Deloitte.


■ 0-200

■ 500-2,000

■ +2,000

■ 200-500

(*) Average effort rates have been calculated taking into consideration sales reported on a yearly bases and each retailer minimum guaranteed rent (including SC and Tax expenses invoiced).Sample size of 3,571 contracts.


Average Prime Effort Rates Trend


Worldwide Commercial Real Estate investment volume has decreased by 3% in 2018. In Spain, the CRE investment

volume has increased by

40% during the same period.

That increase is due to the

Corporate deals.

“

”


4Investment & Financing Drivers

644 687 365 867

2.297 1.894

3.769 3.168

2.765 1.467 591

571

751

2.242

1.263

660

651 1.524

150

279 88

120

596

674

930 1.630

1.452

750

576

519

607

932 2.702

2.145

3.090

4.850

1.460

1.056

544

807

2.520

5.313

4.895 2.295

4.527

4.470

3.189

2.087

3.151

8.587

11.845

12.398

10.834

15.118

-

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

2010 2011 2012 2013 2014 2015 2016 2017 2018

Total (€m)

Offices

Hotels

Logistic

Retail High Street

Retail Shopping Centre

Source: Deloitte

Total Investment volume by Asset Class (€m)

Non-residential Real Estate investment volume

increased by 40% over the last year. Corporate

Deals returned in 2018.

Retail investment volume (Shopping Centres & High Street) has increased during 2018 by 12%.

Despite shopping centres investment volume decreased by 13% during 2018, High Street typology has experienced an increase of 134%.

“

“

iii) Retail Investment Volume in Spain

Retail Investment share of total non-residential investment volume



iv) Capitalisation Rates

Yields Trend In Spain

Average yields in Spain reached their minimum values in 2017, after five years of continuous compression.

Nevertheless, during the last twelve months, yields values have kept stable, forecasting the beginning of a new investment cycle.

“

2.00%

4.25%

6.25%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Spread Prime SC Secondary SC

Yields Compression

period

Source: Deloitte

Shopping Centres Yields Trend Spain

Breakdown by Category (%)



i) Shopping Centres Financing Market

Average Financing Terms (prime shopping centres)

Main

Conditio

ns

LTV

Upfront Fee

Spread

40%-50% 50%-60%

200-250pbs 50-150pbs

325-500pbs 150-275pbs

Framework

Balloon 60% 65%-100%

Credit Access Constraints

Financing Upturn

40%-50%

50-100pbs

150-200pbs

75%-100%

2015 2016 20172013-14 2018

50%-60%

50-150pbs

120-225pbs

65%-100%

40%-65%

150-200pbs

60%-100%

75-125pbs

Source: Deloitte

Most of the

financing activity has been focused on portfolios and secondary shopping centresdue to the lack of “prime” opportunities.

Financing conditions have remained stable if compared with those available in 2018.

“


Since December 2017, 10 new shopping centres were opened, and 2 existing centres were repositioned. Many of these projects embrace the new shopping concept towards open spaces, green areas, and enhanced customer experience.

“

”


5Shopping Centres

Development & repositioning

Benidorm

FinestratGLA 5,300sqm

Almería

TorrecárdenasGLA 62,319sqm

Murcia

Mazarrón ParkGLA 9,600sqm

Most Recent Developments

Barcelona

FinestrellesGLA 39,250sqm

Castellón de la Plana

EsteparkGLA 32,000sqm

Madrid

P.de AlgeteGLA 9,284sqm

Sagunto

VidaNova ParcGLA 45,136sqm

Sevilla

Torre SevillaGLA 26,700sqm

A Coruña

Dolce Vita GLA 26,075sqm

Madrid

Ensanche SurGLA 8,000sqm

Valencia

Alfafar ParcGLA 95,000sqm

Extension New Development

Tenerife

The Duke ShopGLA 8,805sqm

367,469sqm of new GLA has been added since December 2017 and 2018, taking into account new openings and extensions.


5Shopping Centres

Development & repositioning

SHORT-TERM DEVELOPMENT MEDIUM-TERM DEVELOPMENT LONG-TERM DEVELOPMENT

RETAIL DENSITY WOULD BE INCREASED UP TO

355Sqm/1000inhab


366Sqm/1000inhab

216,000 sqm

New projects

of potential GLA

525,122 sqm

New projects

of potential GLA

654,670 sqm

New projects

of potential GLA

+ +

381Sqm/1000inhab


Next Openings Pipeline:

Planned projects and potential developing areas.


The High Street and Retail

Park markets are still part of the Core of most operators expansion plan. Both categories are being redefined and are undergoing some relevant concept changes.

Investors are showing an increasing interest on the High Street market. The investment volume for this segment experienced an increase of 134% during the last year.

“

”


6OtherRetail

Typologies

Other Retail Typologies

Retail High Street: High Street Investment Volume

1,467

591 571 751

2,242

1,263

660 651

1,524

-

500

1,000

1,500

2,000

2,500

2010 2011 2012 2013 2014 2015 2016 2017 2018

Spanish Retail High Street Investment Volume by Year (€m):

Spanish Retail High Street Market Yield Trend (%):

2.50%

3.75%

4.75%

6.25%

0%

1%

2%

3%

4%

5%

6%

7%

8%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Spread Prime Leading Secondary Secondary

Main Players in 2018:

Other Players:

■ High Street Typology accumulated 42

Deals in 2018, 4 of them included in

portfolios. The total investment volume

reached €1,525m, the second highest

figure historically recorded.

■ High Street accounts for 10% of the

total Investment Volume. This share is

4% higher than the previous year.

HIGH STREET INVESTMENT MARKET:


6OtherRetail

Typologies

82% 18%

SC Investment RP Investment

5.00%

6.50%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Prime Secondary

Investment Distribution:

Main Players in 2018:

■ Portfolio creation and consolidation. ■ Sub-market specialization, and owner-

managed disposal of non-strategic assets.■ Tenant uncertainty.■ More vulnerable to e-commerce on the

long-term?Retail Park Yield Trend:

Main Developers

Other Retail Typologies

Retail Parks: Investment Market

Shopping Centres

Retail Parks

RETAIL PARKS MARKET TRENDS IN 2018-2019:

€490m in 2018


Global disruptive trends are impacting on the way companies are positioning their business for the incoming years, and Retail industry is also being re-shaped by these

changes. Now the question is: how are global trends changing the future of shopping centres?

“”


7What is Next?

█ Shopping centres will become places to enjoy and connect with brands. Also places where people can buy a physical item, but considering this task a secondary priority.

█ Shopping centres will become micro cities, with hotels, co-working spaces, luxury residential areas, and many other uses and facilities.

█ Shopping centres will innovate with spaces focused 100% on a specific population niche (such as kids, seniors, vegans, sporties…)

█ Some sport facilities will be placed within this kind of shopping resorts, (such as football stadiums, beisball stadiums, etc).

“We have been told there is no

future for shopping centres. It

is false. Shopping centres do

have a great future, but future

shopping centres will be

closer to “Walt Disney” than to

“Walmart”.

LAUREANO TURIENZO.

RETAIL INSTITUTE SPAIN & LATAM.

ESIC: BUSINESS & MARKETING SCHOOL,

FLORIDA INTERNATIONAL UNIVERSITY -

COLLEGE OF BUSINESS

Global Disruptive Trends’ Effect on Shopping Centres and other retail typologies.

How are global trends changing the future of shopping centres?


7What is Next?

█ Nike Brings Innovative Nike+ Basketball Trial Zone to New Soho Store, offering digitally-powered trials. The immersive experiences provide one-of-a-kind opportunities to showcase product benefits that answer each consumer’s individual sport needs, with the help of in-store certified athletes.

█ L'Occitane also opened its latest concept store last summer along New York City's famed Fifth Avenue. Given that the store is signing up three times more new customers than any other boutique (among other reasons New York retail is often more eccentric), the store is worth investing time and money into differentiating.

“"If you want people to

know who you are you

have to do something

different, and that's not

cheap."

ALMIRA CUIZON

VICE PRESIDENT OF RETAIL

OPERATIONS AT ROOTS




7What is Next?

█ In recent years, retailers and shopping centre landlords have been developing multiple online and physical touchpoints to engage with shoppers.

█ This has made the path to purchase more convenient for shoppers, although more complex for retailers: the growth of online product returns in-store have made it more difficult to evaluate the role and contribution of the physical shop.

█ In the same way online sales are increasing, landlords and tenants are noting the need of adapting the traditional lease structures. Sales-based rent must be reconsidered, and new metrics would need to be defined (i.e. number of in-store visitors)

“Stores are closing as retail

spending moves online at a

meteoric pace […].The US

saw a record number of store

closings in 2017, with 6,885

stores having shut their doors.

DELOITTE

Global Powers of Retailing 2018




7What is Next?

Retailers█ Big-box retailers want to get closer to

clients: the overall tendency includes, less cars and more convenience.

█ There are some strategic difficulties to these formats: High rents for big-box tenants

Limited parking provision & challenging

logistics

Secondary locations, in some cases not very

transited

█ Growing tendency, presenting numerous opportunities in the future.


High Street Trends: Urban Big Boxes

Recent Flagship Value Added Project

Mercado de Fuencarral


The Shopping Centre Handbook 4.0The Future of Shopping CentresSpain 2019

For more information, please, visit www.deloitte.es

Francisco AstorgaManagerFinancial Advisory ‖ Real [email protected]

Félix VillaverdeManagerFinancial Advisory ‖ Real [email protected]

Javier CatónManagerFinancial Advisory ‖ Real [email protected]

Alberto Valls, MRICSManaging PartnerFinancial Advisory ‖ Real [email protected]

Xandra López GurruchagaAssistant ManagerFinancial Advisory ‖ Real [email protected]

James Newman, MRICSAssociateFinancial Advisory ‖ Real [email protected]

Ignacio HerreroAssociateFinancial Advisory ‖ Real [email protected]

José María EspejoDirectorFinancial Advisory ‖ Real [email protected]

Lorena JuriolSenior ManagerFinancial Advisory ‖ Real [email protected]

Luis González Martino, MRICSSenior ManagerFinancial Advisory ‖ Real [email protected]

Joaquín Linares, MRICSPartnerFinancial Advisory ‖ Real Estate

[email protected]

Alejandro RozasAssociateFinancial Advisory ‖ Real [email protected]

Rodrigo MagánAnalystFinancial Advisory ‖ Real [email protected]

Rafael ArcasPartnerFinancial Advisory ‖ Real Estate

[email protected]

Documents

The Shopping Centre Handbook 4 - Deloitte United States · Shopping Centres Density Breakdown: 6 Spanish provinces with room for development of quality GLA or refurbishments / repositioning