As much as 40 percent of retail space in the United Kingdom will be repurposed in the next five years, a recent study by the consulting firm Lambert Smith Hampton (LSH) has shown. With the rise of online shopping, changes in consumer habits accelerated by the Covid pandemic, and the emergence of new, more modern shopping center concepts, the repositioning of centers or their complete repurposing is a trend that has been present for some time worldwide.
Even older shopping centers in Croatia are undergoing this transformation process, with Branimir Mall, Mingle Mall, King Cross, and the shopping center in Jankomir, which has welcomed the company Rimac, already experiencing such changes. Westgate will soon be largely converted into office spaces.
– The change of purpose for shopping centers can go in any direction, from expanding services and offerings to complete repurposing of the facility. When we talk about expanding the spectrum of services, we most often observe shopping centers that add restaurants, cafes, entertainment facilities, gyms, office spaces, or even cultural offerings alongside retail space. On the other hand, we also have cases where the purpose of the facility is completely changed, with existing buildings being repurposed into storage or office spaces. Given that this is a decision that entails much larger changes, it is made based on extensive market research, explained Nuccia Basanić, Head of the Commercial Real Estate Brokerage and Consulting Department at Colliers, adding that repositioning of shopping centers usually occurs when market conditions change, consumer needs evolve, when the center faces strong competition, when it does not achieve expected business results, or when owners decide on such a move because they believe that repositioning will bring them greater profit and a better market position.
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In Croatia, we have mostly witnessed repositioning in a way that, alongside the retail component, the center begins to expand its offerings to include more content. Branimir Mingle Mall thus offers a gastronomic offer, cinema, fitness, casino, shops, hotel, and office spaces across six floors.
Kaptol Center has taken a similar direction, with equal emphasis on shopping and lifestyle, so that in the center, alongside numerous amenities, there is also a singing school. King Cross has expanded its range of services to numerous events organized throughout the year, from races to dog shows, various exhibitions, and family entertainment programs.
– The repositioning of some other centers could go in the direction of expanding the spectrum of services they provide, but also complete changes in purpose, which will depend on market conditions, the location of the center, nearby amenities, as well as market needs and the appetites and know-how of investors/developers, says Nuccia Basanić.
Factors Affecting Rental Prices
Mani Center, which has never fully taken off, is most logically to be repurposed into storage or logistics spaces, and repositioning would also be a logical move for the first Zagreb centers, Importanne and Importanne Gallery.
Ultimately, repositioning does not mean a reduction in rental prices, but what the final price will be depends on whether the center becomes more attractive and attracts new tenants, and in the case of obtaining a new purpose, which real estate segment the space will be repurposed into.
– The repositioning of centers in terms of expanding the offer usually has a positive impact on existing tenants in that by adding diverse content and attracting a larger number of visitors, the center becomes more attractive to retailers and other commercial tenants. This results in increased demand for spaces within the center, which can ultimately raise rental prices.
In terms of repositioning regarding a change of purpose, the rental price will be dictated by market conditions for a specific real estate segment. Hypothetically speaking, for a shopping center that operates at a loss and from which tenants are leaving, changing the purpose from retail to, for example, storage spaces, could mean a reduction in rent for tenants.
Besides location, which plays a significant role in determining rental prices, there are many other factors that influence this, such as the duration of the lease, the area being leased, investment in the space by the owner or landlord, and other elements of the commercial offer, concluded Nuccia Basanić.
