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Māris J. Oga is a   Board member of LLC „Ranka K”,  www.ranka.lv   Aceasta adresa de e-mail este protejata impotriva spamului, JavaScript trebuie activat a putea vizualiza pagina.

So far regular reports of Latvian shopping centre industry – as parts of general real estate market overviews – were produced by „Ober Haus Real Estate”, „Colliers International”, „Arco Real Estate”, „Latio” and as from spring of 2006 also by „Re:Solution”.

Once in a quarter there was a very good food retail magazine „Supermarkets” by PROSPECTS BALTICS – by unknown reasons it has recently stopped its existence.

 As usual in our latitude, every market overview was based on individual classification. In principle it is OK by the standards of free market. In particular this just again outlines the lack of unifying elements within shopping centers industry of Latvia.

In the rest of the world such element exists under the name of ICSC (International Council of Shopping Centers) – founded in 1957 in Chicago, USA, and now uniting more than 57.000 corporate and individual members in more than 80 countries worldwide. The 1976 ICSC European conference in Paris where keynote address was delivered by Gerald Ford, then President of the USA, is considered as a birthday of ICSC European organization.

As we can guess, in 2007 ICSC will celebrate a half-century anniversary. Could be great to have at this moment already established Latvian Council of Shopping Centers to join reborn democracies of Poland, Czech Republic, Ukraine and Russia (not to mention „old” EU countries). A council which on the daily basis can unite owners and operators, developers and investors, retailers and lawyers, marketing people and architects, territory planners and officials, researchers and other professionals. United beyond daily business rivalry by the wish to improve the industry in general and make every individual centre as an integral and important part of the everyday life of respective community. What a wish.

More about ICSC you can read at www.icsc.org .

Preparing this overview, which, in case of general approval of the industry, can become a regular one, I decided to start with the so far missing integral part – a suggestion of united definition and classification.

Last year ICSC Research published a study „Towards a Pan-European Shopping Centre Standard” / „A Framework for International Comparison”, during preparation of which I filled in some questionnaire sent by my ICSC colleagues. My unedited comments, where lack of formal united classification was confirmed, came out as the only information about Latvia and other two Baltic countries. It is time to mend this gap by the help of the same study and experience accumulated in other European countries.

Taking in account recommendations by ICSC, we hereby suggest following definition of shopping centre with Latvian/Baltic adjustments:

„A shopping centre (SC) is purposefully planned, built and managed as a single real Estate entity with at least 5 separated lease units, with a minimum gross leasable area (GLA) of 1.500 square meters (m²) and with single tenant („anchor tenant”) taking not more than 75% of GLA.”

The following classification is based on these locally adjusted ICSC recommendations:

One can question necessity to have such scheme as „very big shopping centre”. Looking back to 31st European ICSC Conference in Copenhagen, shopping centers were recognized by merits and prizes in just three categories – small, medium and big. It has to be mentioned that winners in the „big” category were our rather close neighbors – „Arcadia” from Warszawa with a GLA close to 110.000 m².

In line with this and noting that next, 32nd ICSC European conference is scheduled for spring of 2007 in Warszawa; I have to suggest that much broader participation of industry professionals from Latvia can be very beneficial for joining ICSC on formal basis.

Further it has to be mentioned that the scheme suggested by ICSC lacks such an entry as department stores. In general they have their own association and usually are seen as anchor tenants in bigger schemes. Still, omitting department stores in suggested scheme for Latvia, it might look like missing integral part – especially in historical perception.

To use, correct and adjust proposed classification here are the explanations of the main terms used.

Formats

Traditional – an all-purpose scheme with shops and services to cover all daily needs.

Specialized – specific (with focus on specialized assortment or interest group) purpose built SC that are typically with open-air common areas.

Centre Types

Comparison-based – include retailers typically selling fashion apparel and shoes, home furnishings, electronics, general merchandise, toys, luxury goods, gifts and other discretionary goods. Often part of some city retail district and non-anchored.

Convenience-based – include retailers that sell essential goods and usually anchored by grocery supermarket (hypermarket). Additional stores usually include household goods, basic apparel, pet food and flowers.

Retail Park – usually consist of several „big boxes” – purpose built specialty supermarkets or hypermarkets. Retail Park is consistently designed, planned and managed; it has common transport scheme, parking, signs and services.

Factory outlet centre – consistently designed, planned and managed group of shop units, where manufacturers representatives sell goods at discount prices that may be surplus stock, prior-season and slow-selling.

Theme-oriented Centre – include several retail units, typically concentrates on a narrow but deep selection of goods within specific retail category.

Leisure-based theme-oriented centre – usually anchored by a multiplex cinema, bowling and/or fitness centre or skating rink, includes bars, restaurants, other entertainment and theme-connected shops.

Non-leisure-based centre – usually concentrates on a niche-market for fashion/apparel or home furnishings. Could be targeting specific customers such as passengers at airports or railway terminals.

LOOKING AT STATUS QUO.

Clearly defined classification is a good base for analysis of current situation, however in real life sometimes is hard to draw a firm line between different structural types. As a result initial classification may require changes, but at least for time being we can compare Latvian shopping centers with their counterparts in Europe and elsewhere.

There is a little doubt that within 5 to 10 years existing classification principles will be changed. Existing project trends in Europe confirms that – rising requirements for safety and quality of trade, lack of time brings need for many goals for single visit to the shopping centers – old schemes can not attract satisfactory numbers of visitors any more. As a result – no new considerable shopping centre project can be imagined without hefty theme, leisure and entertainment part.

On of the seemingly easiest approaches for shopping centers classification in Latvia could be Scandinavian model with classification types like local, district, regional and hyper regional centers. However, all development so far has been purely opportunistic – if there is some already functioning centre, let’s build another one. Who cares about catchments areas, underserved areas and fair planning principles? Until recent local municipalities were ignorant to development principles. Lately attitude has started to change with still a long way to go.

Let’s look at one example – Krasta street in Riga. It has many signs of classical retail park, but it lacks common planning, infrastructure and maintenance. Once upon a time municipality promised to build several streets. They are still not there. As a result, these who believed in city participation had to quit and sell their buildings to other businesses.

That is exactly this absence of common plan and maintenance, as well as indifferent attitude from city council regarding long needed infrastructure improvements what requires considering each entity in this area as separate shopping centre or other retail unit.

Same story in the general area on K. Ulmana road from intersection with Lielirbes street till city border. Also there we can talk about de facto retail park, just short of some unifying infrastructure.

Different example: „Alfa” calls itself a retail park, still, according to classification principles, it is just big traditional shopping center anchored by „RIMI” hypermarket and several sub-anchors like „JYSK”, „Senukai”, „Sotka”, „Aspo”, „Drogas” and many others. Huge gain after recent reconstruction is carefully crafted food court. By classical standards „Alfa” will became a retail park after separate D.I.Y. shops will be opened. In meantime marketing efforts have minted „Retail Park Alfa” as a separate household term.

Same about use of the name “galleria” as a part of the names of several shopping centers.

For instance, long planned “Galleria Patollo”, when and if it will be built, will be medium/big traditional shopping center and by “galleria” it can be called because it will connect two streets in the middle of a city block.

Recently opened “Galleria Azur” by all means is just a medium size traditional free standing shopping centre and “galleria” is mere semantic.

Another recent addition to the list of “gallerias” – “Galerija Centrs” – is a real galleria by construction principles, with a covered street between two buildings. Heavily attacked by heritage zealots during project stage, after completion it seems to be great addition to city life scenes, especially taking I account our long, cold and dump winters. In some ways for the city of Riga it is like the very first European purpose built commercial gallerias – St. Hubert and De la Reine in Brussels.

Classical small gallerias (also called passages or arcades – like famous Burlington ones in London) are very few in Riga – within "Hotel De Rome”, „Basteja pašāža”, „Upīša pasāža”, few others.

Usage of the name galleria in different projects may have some simple explanation – developers of all three shopping centers are from Scandinavia where Nordic Council of Shopping Centers has created classification which includes type of scheme named „galleria” – urban retail area connecting two pedestrian zones.

Taking in account that main players in Latvian shopping centers industry comes from Scandinavia, it is quite possible that at the end Scandinavian classification will be accepted in Latvia. This version of classifications is thorough and well used, just seems mixing size parameters with conceptual ones. That may cause problems when comparing Latvian centers with counterparts beyond Nordic region.

After recent opening of „Galleria Azur” (August 23, 2006) and „Galleria Centrs” (August 31, 2006), there are only two major new projects more or less in the pipeline in Riga – already mentioned „Galleria Patollo” and „Riga Plaza”.

The two main reasons are as follows: unclear perspective of major infrastructure developments (new bridges and major streets) and huge inflation within construction industry. If rental levels are almost stable for last 3-4 years, construction costs have increased at least twice. Existing situation is affordable only for long term low yield investors.

The rest of inhibited projects are mostly within the range of small convenience centers, mostly initiated by major supermarket/hypermarket chains – “RIMI Baltic” (RIMI super and hyper markets plus SUPER NETO discount stores) and “VP Market” (three sizes of MAXIMA super/hyper markets).

Some surprise was prepared by German “Lidl” – after long back and force hesitation period and even accumulating of real estate package, they decided against entering Baltic market.

This as well might be calm down before storm. All major players have beefed up their existing assets; holders of real Estate have trimmed their possessions. Already „Colliers” have sounded some minor alarm bells – Latvia is within sights of major international players for some time already. Something is going to happen. The big question is – what and when.

Having a closer look at existing shopping centers we can note at least one common alarming issue – several of them – providing similar services - are based on the same catchments area. Reason for this is simple – very concentrated, scarcely branched transport infrastructure. Major changes can bring major casualties as well.

Another common problem – slow establishment of internationally recognizable retail brands. Few of them are coming via third party franchise holders, heavily struggling to balance small market with requirements for frequently updated modern collections.

There is some hope for a turning point – there are rumors about soon coming of “H&M” and “C&A”. “Marks & Spencer” opened their first outlet on September 19^th in DOMINA SHOPPING. So, franchises are here. Let’s hope for the real thing as well.

CLASSIFIED LIST OF SHOPPING CENTRES

Offered classified list is not final, as only the most popular centers are included. Among omitted ones – these who considered any information about floor space or tenants absolutely confidential (well, a bit more time with publicly available state data basis will unveil many „secrets”).

There is a plan review and amend the list on regular basis, hoping that somehow missed centers will call up and seek their place on the list.

Regional division allows to judge situation with retail services supply in different parts of the country.

Comparatively empty Vidzeme region tells the story about rather scarce population and relatively easy commuting to Riga or alternative shopping destinations (say, it is easier for the residents of border town Valka to go to Tartu in Estonia then to reach capital Riga). Not to mention some slight protectionism executed by local municipalities, if anyone “from the outside” wants to take on local retail.

Another possible explanation – Vidzeme do not have its local “megapolis” as this role is snatched by capital Riga. In this respect good news are recently unveiled plans for major expansion and reconstruction of the historical “department store” in Valmiera.

Classification file do not have graph for rental charges, as majority of centers consider such information a very confidential and sensitive one. At the same time it is not a secret that main shopping centers have these figures in the bracket between EUR 7, 00 and EUR 55, 00 per square meter per month (ex-VAT and common charges). The lower end is for big anchors, mainly food super and hyper markets. The higher end goes for high couture and other upmarket-oriented boutiques.

The known record so far is EUR 135, 00 – which is on the level of Milan high streets. Looks like center managers have noted this record for real – unofficial information suggests that newly re-opened „Galerija Centrs” smaller boutiques are charging with close to EUR 100, 00 per square meter monthly rent (ex-VAT and common charges).

If this will become common and if tenants will coupe with this – it will be a good sign for further developments of shopping centers.

If next issues will come, we shall dedicate them to changes and adjustments of classification. We shall focus also to individual towns, shopping centers and local industry trends