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Developers target regional capitals

More than 40 new retail projects to be built by 2009

By Markéta Hulpachová
Staff Writer, The Prague Post
June 6th, 2007 issue

COURTESY PHOTO
Plaza Centers says its planned downtown mall in Liberec "will fuse shopping with entertainment."
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The ghost of Karolína, a defunct coking plant in Ostrava, north Moravia, has haunted urban planners since the city’s coal mines were shut down in the early 1990s. Riddled with contaminated soil, the deteriorating industrial zone was an eyesore in the town’s historic center until its reclamation in 2003. And while the excavators rumbled away, the area became a gold mine for retail developers looking to replace the plant with a shopping mall.
The nation has graduated from the highway-side discount malls and hypermarkets built earlier this decade, and real estate firms are planning the next step in retail development. Their hunt for new projects is bringing another surge in large-scale retail construction, this time targeted at the centers of regional capitals.
“The market is flooded. It’s no longer possible to build on greenfields,” said Pavlína Hajnová, spokeswoman for Centers Data, a real estate analysis company. The firm hosted a May 24 retail market conference that showed at least 40 new shopping centers will be built by 2009.
By comparison, “only three shopping centers with more than 40 retailers opened last year,” said real estate analyst František Diviš of Incoma Research.
Industry experts attribute the projected 2007–09 upswing in mall construction to the time-consuming nature of urban development planning.
“Because [investors] are building in city centers, obtaining the necessary permits is more difficult,” said Martin Žížala, a partner at the real estate consultancy Cushman & Wakefield. The lengthened planning period of some projects has delayed their progress, aligning their completion dates with those of projects that were initiated later.
“It’s a coincidence that so many projects have piled up over the next two years,” Hajnová said.
With the growing saturation of the urban market, commercial developers are expanding beyond the limits of large cities to neighboring towns.
Unlike the sprawling complexes built on the outskirts of large cities earlier this decade, most of these smaller projects will be constructed in downtown locations. For developers, this presents more obstacles than building on urban outskirts.
“It’s more complicated to build in city centers,” Žížala said. “Investors have to be more sensitive about design, and local citizens get more involved.”
Nevertheless, investors are willing to face drawn-out permit application processes in hopes of reaping long-term benefits. Because real estate is limited, developers who manage to secure project space face less long-term competition.
“Overall, developing projects in city centers is more complicated than building on greenfields, but it’s a longer-range investment,” Žížala said.
Changing tastes
When planning new retail projects, investors are catering to new trends in consumerism. Economic prosperity and changing consumer tastes encourage shopping mall developers in smaller towns to rent space to midrange and high-end retailers.
“The population’s tastes are changing,” Žížala said. “People are getting used to buying brand names and higher quality products.”
Instead of focusing on the discount hypermarkets of past years, investors market their new projects as shopping and entertainment destinations. This trend is especially popular in regional capitals, where developers hope to attract customers by promising a “shopping experience.”
“In many of these smaller towns, Tesco is already there, but [there isn’t] a place where people can meet, shop, go to the movies,” said Tal Ben Yehuda, managing director of Plaza Centers Czech and Slovak Company, currently developing malls in Opava, north Moravia, and Liberec, north Bohemia. “Our goal is to fuse shopping with entertainment.”
As they race to secure real estate in urban areas, more developers are investing in rehabilitated industrial zones, or brownfields. Multi Development, the company selected by the city of Ostrava as the retail developer for Karolína, is one of at least four companies investing in brownfields in locations such as Ostrava, Prague and Liberec.
“Developers want to get closer to consumers, so they’re heading into urban areas. As a result, brownfield projects are on the rise,” Diviš said.
The limited available space in urban areas increases competition among investors. The most popular location for prospective development is Liberec, where nine new shopping centers are expected by 2009.
“Some of these projects will be built just meters from each other,” Hajnová said.
Investors are drawn to Liberec because of its relative lack of shopping malls. Only one large development currently exists in the city center, an unusual deficit for a city with a population of 100,000.
“Liberec is one of very few cities where shopping opportunities are still limited,” said city spokesman Martin Korych.
In a regional capital such as Liberec, new developments have a deeper economic impact than in metropolises such as Prague or Brno. In previous years, the trend of developing large projects outside city limits proved detrimental to cities such as České Budějovice, south Bohemia, where a flood of new work and shopping opportunities in the suburbs pulled inhabitants out of the city center.
Conversely, cities such as Ostrava and Liberec view the new retail projects as a chance to magnetize economic growth back downtown.
According to a report published by Ostrava city planners Vítězslav Kuta, František Kuda and Jaroslav Sedlecký, “The city of Ostrava has long-term goals to attract investments for the development of its city center.”
In Liberec, city officials play a more passive role.
“It is not our place to regulate the free market in our region,” Korych said. “Overall, we see these developments as positive.”

Markéta Hulpachová can be reached at mhulpachova@praguepost.com


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