McArthurGlen is seeking to expand its presence in Germany despite legal and planning challenges, CEO Gary Bond has told PropertyEU in an interview. In May, McArthurGlen commenced construction of its new Designer Outlet centre in Neumünster, near Hamburg after a German court ruled in favour of the developer in a final appeal.
The EUR 120 mln development will consist of around 100 retail units with a GLA of 20,000 m2. Scheduled to open in autumn 2012, the centre will be the second to open in Germany for McArthurGlen and joint venture partner Henderson Global Investors (HGI), on behalf of its European Outlet Mall Fund, following the opening of Designer Outlet Berlin in 2009.
'The German market is attractive, but there are some legal and planning challenges,´ Bond said. 'We’re winning all of them, but they have taken longer than we thought because we've had to go through the courts.'
Aside from the Berlin centre, the developer also has an outlet centre in Roermond on the Dutch-German border. Bond: 'Roermond has a huge catchment area of between 15 and 20 million. It's operating extremely well. We plan to add another phase, following the opening of phase three later this year, which means it will end up as a very large centre of 45,000-50,000 m2 in three years’ time. That will be the largest size we’ve got anywhere.'
The centre is actually located on Dutch soil which is an advantage when it comes to obtaining new permits, he added. 'In the Netherlands you know better at which stage you’re at, you know the problems upfront.'
The Berlin centre meanwhile will remain confined to its current size of around 21,000 m2 GLA following the opening of the second phase in 2010. Bond: 'We would like it to be bigger. It's now got about 80 shops and is doing very well: turnover has increased threefold since we opened the new phase. But it won’t get bigger than it is now due to limited planning permission.'
The planning phase of the Neumünster centre near Hamburg took five years to complete, Bond pointed out. 'Obtaining planning permission in Germany is politically and procedurally very difficult. Germany is a very fair society, but there are so many rights of appeal, it never seems to stop. Following the last judgement on the Neumünster centre, there was no right of appeal. But it is possible to appeal the no right of appeal through a federal court. We had to wait about another six months for the court to say that. It was very frustrating.'
The main opponents to the development of McArthurGlen's outlet centres tend to be retail associations concerned about competition, he added. 'Public sentiment is often mixed. Local towns look forward to the additional employment and the centre. The only opposition is from retailers in surrounding towns who fear that the outlet centre will take spending power away. What they don’t realise is that it brings in more spending power. Roermond is a prime example. The authorities are over the moon about the centre: it has increased spending power throughout the city.'
Germany currently has the lowest rate of designer outlet space in Western Europe, with 0.9 m2 of outlet space per 1,000 inhabitants compared with 10 m2 in the UK, the most developed market in Europe. However, the legal and planning obstacles have tempered McArthurGlen's ambitions for the German market, Bond conceded: 'We're still working on two or three sites, but we can’t take them for granted until we've been through the planning. It's hard to find the right opportunity in Germany. But there are ways of making something work and we are looking at some opportunities both on the edge of town and at city centre sites. We are looking at various sites but don't have any concrete plans at the moment. '
Aside from the Berlin and Hamburg centres, Bond aims to have another three operations in place in Germany within the next three to five years, he continued. 'I think realistically we won't get more than that. Other players will do sites as well. Planning restrictions are so much tougher in Germany than anywhere else in Europe.'
Other players active in the German market include Value Retail and Neinver. Value Retail has two centres in Germany while Neinver has bought a centre in Sweibrucken and has plans for more developments in Germany. It was also in the running for the European tender in Neumunster. Bond: 'There's room for everyone in this marketplace although there are no other newcomers. Occasionally small developers move in and get it totally wrong. We don’t mind really. The centres that are not trading well mean that opportunities will come our way eventually.'
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