How to build a successful shopping centre in Ukraine

How to build a successful shopping centre in Ukraine

Despite the unstable economic environment a successful shopping centre can still be developed in Ukraine. DTZ Ukraine experts analyzed the plan of the optimal mall development from land site identification through to delivery taking as an example the key stages of the Forum Lviv shopping center development.

 

1. Analyzing the starting points

 

The identification and the highest and best-use analysis of a land plot is part of the process including the estimation of the required financial resources and reviewing the best practices of the retail assets development. If the land plot is suitable for the shopping centre development, but there is a financing shortfall, it is reasonable to attract a strategic partner. When choosing a strategic partner it is necessary to pay attention to the company’s experience and reputation.

Volodymyr Mysak, Head of Capital Markets at DTZ Ukraine said: “In 2007 DTZ received a request from Vladimir Zhenchak, Director at Gallereja Center. The company owned a land plot located in the central part of Lviv.  As long as  Mr. Zhenchak has already had an experience developing commercial real estate in the local market, he understood that the land is suitable for a high-quality shopping center development. In order to successfully implement the scheme it was agreed to cooperate with an experienced strategic partner/developer, hence the attraction of such a party became DTZ’s task.

Analysis confirmed the feasibility of commercial real estate asset construction at the site, DTZ started seeking out a partner for this project. In a short period of time Multi Development showed interested in the project. As a result of successful negotiations, a joint venture for the project has been established.”

Vladimir Zhenchak, Director at Gallereja Center commented: “During the initial stage DTZ’s experience was very helpful in engaging the right project partner (developer), as in 2007 many different real estate companies operated in Ukraine, and DTZ deserves the credit for bringing in the best possible partner”.

 

2. Commercial and architectural concept development. Tenant demand testing

 

If the initial highest and best use analysis indicates that the site is suitable for a shopping center construction, the parties start developing the concept.

An efficient shopping mall concept should be based on:

  • Specifications and location of the land plot
  • Targeted audience
  • Tenant demand
  • Current and future market conditions

 

Moreover, the concept should be feasible and flexible. It has to ensure the investment liquidity of the asset and the highest possible profitability in the long term perspective.

The architectural concept is developed on the basis of a well-designed commercial concept of the shopping center. The best choice is cooperation with a reputed architectural firm that has an experience in implementing the commercial real estate projects not only in Ukraine but also in international markets. In Forum Lviv case the architectural concept was designed by the architectural firm T + T Design, Multi Development’s in-house bureau.

Irrespective however of the reputation and experience of architects, it is essential that the architectural design process is an interactive one involving the leasing agent so as to ensure that the design and especially layout, unit sizes and mix meet the demands of the local market. DTZ were involved throughout the Forum Lviv architectural process in reviewing designs and layouts and undertaking various revenues projections based on various designs.

 
3. Attracting tenants

 

Key tenants should be involved in shopping centre development starting from the first stages. Their requirements should be considered during the concept development. Further the concept may be adjusted in case the market conditions change.

After finalizing the concept begins the process of identifying the best anchor brands and operators start signing prelease agreements.

The function of cooperating with the tenants is best executed by an experienced company that has a good knowledge of the local market and has experience in implementing successful shopping and entertainment centers schemes, as well as an impeccable international reputation.

During the Forum Lviv project realization DTZ has provided tenant selection, co-exclusive leasing and layout optimization services considering the Ukrainian market dynamics.

“Forum Lviv shopping centre attracted tenants due to the following factors: the properly designed concept, strong tenant-mix, advantageous location, and developer’s reputation.  When all development stages are expertly organized, retailers would stand in the project despite the uncertain economic situation in the country”, – says Antonina Puchko, Head of Retail Agency and Consultancy at DTZ Ukraine.

 

4. Engaging a financial partner (optional)

 

Often during the mall development process project participants face the need to find additional equity. Attracting new equity means selling project shares. In case of Forum Lviv, DTZ assisted Multi Development and Galereja Centre in attracting an important minority partner – Budhouse Group. Volodymyr Mysak commented: “In addition to the complexity of the deal, there were rigid requirements that the new JV partner had to meet, according to the request of European Bank for Reconstruction and Development (EBRD), which is providing project financing of more than EURO 50 mil”.

 

 5. Delivering the scheme 

 

During the delivery stage parties sign leases and receive the permission to launch operations.

«During the delivery stage we usually assist the developer in coordination of the organizational processes. In particular, we remain involved in interfacing with tenants. It is crucial to make sure tenants sign leases on the commercial terms agreed and are implementing their fit out works and will be ready to open on launch day. So basically, we perform “relationship management”, – Antonina Puchko, Head of Retail Agency and Consultancy at DTZ Ukraine shared her observations.

 

6. Project launch

 

Another important factor is the effective organization of the shopping center grand opening. All possible resources should be leveraged in order to provide the highest level of occupancy and maximize the number of visitors on the opening day. When planning a launch it is important to choose the right timing. A beginning of new season (SS or FW) is the best time to open a shopping centre.

Support from local authorities might become another key to success.

“It is a testament to Multi-development and their partners that this scheme has been so well delivered and also a testament to the pro-active and positive approach engaged by the city of Lviv in attracting and supporting this investment. This development is simply one more example of ongoing speculative and bespoke development in Lviv spurred in no small part by the investment friendly attitude of the city», – added Nick Cotton, Managing Director at DTZ Ukraine.

Conclusion: The success of the project at all stages depends on the correct initial team assembly. Typically it is can be impractical to have all relevant professionals on the staff, that is why it is common to engage outsourced specialized companies (consultants, management companies, architectural firms, and technical support) for the duration of a particular project.

When selecting project participants, it is important to pay attention to the following:

  • Number of successful projects, their long-term operational and commercial efficiency;
  • Professional experience and knowledge;
  • The company’s reputation on the local and international markets.

 

Since a well-chosen location, project design and a tenant-mix have a direct impact on the future success of the project, it is important to gather professionals during the initial stages of the project development. This will help to deliver a high quality scheme. Vladimir Zhenchak, Director at “Gallery Center” recommends: “In terms of the Ukrainian market the cornerstones of the shopping center success are professionalism, patience, persistence and the ability to take risks. Only those able to foresee the future of the market will be capable to implement a successful project. Besides, considering difficult market conditions it is crucial to have a professional local partner in order to solve multiple issues rising at the beginning of the project and during the construction.”

How to build a successful shopping centre in Ukraine How to build a successful shopping centre in Ukraine How to build a successful shopping centre in Ukraine How to build a successful shopping centre in Ukraine How to build a successful shopping centre in Ukraine How to build a successful shopping centre in Ukraine

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