France: the challenges of out-of-town retail

Much of the peripheral retail real estate around French towns and cities is no longer fit for purpose, but simply building new space may not necessarily be the best answer.

France Christian Dubois

©Cushman & Wakefield

“While we estimate that nearly 2.4 million sq m of new retail space is planned in France by 2021, in practice only about half of this is likely to be delivered,” says Christian Dubois, international partner, head of retail services France, Cushman & Wakefield. “The reason for this is because investors will not release finance without pre-leasing at between 30-50% and retailers are becoming increasingly resistant to committing to space until the last minute.”

This impasse has created a “chicken and egg” situation in terms of delivering new space says Dubois and he feels there may be further political pressure because local authorities and regions are beginning to question whether some of the new development is simply creating vacancies within existing retail locations.

“The dynamics of out-of-town retail depend on the city categories,” adds Emmanuel Le Roch, executive officer, Procos.

In metropolitan areas and large agglomerations, the market remains dynamic for recent assets, especially for retail parks. By contrast, some aging zones or assets have more difficulties in being leased, vacancy levels are increasing and rents falling. – Emmanuel Le Roch

He says that the discount chains remain very active, while some retailers that have historically operated in peripheral locations are testing new expansion models and formats either in shopping centres (for example, Kiabi) or, more frequently, by opening smaller urban formats in large cities, especially in Paris (Truffaut, Decathlon, Leroy Merlin, etc).

“In the medium-sized towns, the outskirts remain healthy enough; nonetheless rents are tending to decrease and this reveals the importance of being very careful about over-supply on the periphery of each city,” he warns, adding that new space may simply displace retailers from existing sites.

France Antoine Frey

©Frey

Frey president and chairman of CNCC Antoine Frey adds that first generation retail parks – many which opened in the 1980s and 1990s – “are obviously becoming obsolete. They were often built without coherent planning, poor accessibility and the total absence of sustainability demands.”

He cites Coeur Picardie in Amiens and Promenade de Flandre in Lille as examples of a new breed of retail park, which also appeals to investors, with yields compressing as a result.

“Very clearly, the paradigm has changed,” he says.

The old schemes, as they were developed, are not acceptable anymore. The Valorpark label initiated by the French Council of Shopping Centres (CNCC) defines precisely the criteria that current retail park projects should meet: social and environmental responsibility, quality architecture, a high level of services. – Antoine Frey

Dubois agrees and points out that the vast majority of the projected new space is for the creation of retail developments, not the extension or improvement of existing assets.

“I think we may see a shift, partly because of investment and partly because local government can make obtaining building permits and licences more difficult, towards the renovation of current schemes,” says Dubois. “Getting the right permissions is becoming increasingly challenging, it’s something of a French sport. What we are seeing is that the quality and level of services of the projects that are being delivered is going up, partly because it is the major players who have the money and reputation to take their projects forward.”

France Mcdonald's

©Mcdonald’s

Driving footfall remains key and Sebastien Le Goff, vice president development, real estate & construction, McDonald’s France, says: “We are experiencing an upheaval in consumer habits linked to a desire for proximity, the use of digital technology and the mode of delivery. The most vulnerable sites in terms of size, merchandising and accessibility will also be the ones that will suffer the most. So it is necessary to be able to create enthusiasm for consumers and improve the customer experience. Entertainment or catering can help but also design and architecture.”

He stresses that there is no “magic formula” to determine potential turnover. “McDonald’s works every day to improve its forecasts. Non-premium sites lead us to be cautious and we need to implement the right tool according to good turnover,” he explains.

The analysis of all these criteria will reassure us. Then it is down to us, as retailers, to do our job to offer the best experience, to use digital to build loyalty and to facilitate the life of our customers and therefore generate traffic. If we do not feel able to control all the profit and loss steps, we prefer to go our way; hence the importance of having fees properly controlled by the landlord. – Sebastien Le Goff

To revitalise existing locations, Le Roch believes the first requirement is local officials with a “global vision” of the retail in their area. The second is a “fruitful dialogue between officials, real estate players and retailers” in order to work together to upgrade by combining actions like the creation of new sites to transfer some stores, façades and car park restructuring, traffic improvements and creation of new green spaces.

“With regard to the financial approach, this requires a work to clearly establish a common aim, and to understand which part can be financed by the private sector and which is not,” says Le Roch. “This collaboration between players is very infrequent today. Operating chains are still too rarely involved at an enough early stage in the action plans and nor are the owners who will be impacted by store transferring to a new retail centre.”

Le Goff adds: “We work a lot with the landlords and we do not hesitate to consider a relocation to help their projects. It is important that the location can be aligned with the company’s strategy. For example, McDonald’s uses great designers for its lobbies in restaurants. We will then wish to benefit from private space to express our evolution near the consumers and we will be reluctant to be positioned in a food court.”

France Frey project

©Frey

Frey reflects that France remains a difficult and time-consuming market to obtain the necessary planning and construction permissions but hopes that proposed new laws will be voted through by parliament in order to simplify and accelerate the administrative processes. The measures are strongly supported by Frey and CNCC.

Local authorities understand that they should collaborate more and at an early stage with developers to conceive and build successful projects – Antoine Frey

“I would give two examples from my company in Strasbourg and Montpellier. These two cities had among the biggest peripheral retail zones, which had developed in a very anarchic way. With the two municipalities we have agreed their requalification, giving us real power to masterplan, transfer activities and create new ones. Moreover, both will be mixed-use, incorporating retail, leisure, offices and residential. It’s important to underline that such territories, which were peripheral when created, are now urban environments, the cities having extended. Thus, they should be requalified as true urban districts.”

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Mark Faithfull

Mark Faithfull is Editor of the MAPIC Preview and News Magazines, as well as Editor of online publication and analysis specialist Retail Property Analyst.

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