Global shopping centre giants go on a Christmas buying spree

With Christmas just eight days away, more than 200,000 shoppers will brave the crowds to trawl Westfield London’s 300-plus stores for gifts this weekend.

The gleaming centre, which lights up the west London skyline, is one of the “supermalls” that now tower over the UK retail sector, pulling in millions of shoppers thanks to a magnetic mix of high street and luxury brands, as well as more upmarket restaurants and cinema screens than your average town centre.

Yet, as if Westfield London’s current near-two-mile run of shops were not enough to exhaust even the most energetic Christmas shopper, visitors can see the shell of a £600m extension that, come spring, will turn it into Europe’s biggest mall, with John Lewis and Primark among the new arrivals unveiling branches next year.

However, the new wing looks like madness in the current economic climate. British households are facing the biggest squeeze on living standards since records began, while the trend for online shopping is prompting many retailers to close, rather than open, stores.

This tough environment is what sowed the seeds for this month’s game of shopping-centre Top Trumps, with two blockbuster deals announced within days of each other.

British property group Hammerson said it was buying smaller rival Intu for £3.4bn, then Australian billionaire Sir Frank Lowy pulled a rabbit out of the hat by agreeing to sell his family’s Westfield shopping centre empire, including its two London malls, to France’s Unibail-Rodamco for £19bn.

“There are so many things going on in the world of property at the moment, but with these deals we are seeing them all collide,” said James Findlater, head of shopping centre investment at Colliers International. “There is a structural change because of the shift to online, but also macro issues – notably consumers’ ability to spend when they haven’t had a pay rise for 10 years.

“There is probably 30% too much retail, and it is still being built.”

Findlater says owners of older shopping centres are struggling to attract retailers, who are more interested in being in the country’s top-tier malls such as Westfield: “Outside of the core dominant shopping centres, there have been deals done post-recession where retailers are paying no rent. Landlords don’t want to be saddled with covering occupancy costs on vacant stores.”




The Trafford Centre in Manchester, owned by Intu.

The Trafford Centre in Manchester, owned by Intu. Photograph: Christopher Thomond for the Observer

There are around 550 shopping centres in the UK; and while 10 years ago retailers would have had to open 250 stores to cover the country, these days that figure is just 100 plus a website. In this climate, the strongest shopping malls have more power, creating a huge headache for the owners of centres in secondary locations, who are facing a vicious circle of decline.

Intu’s chairman, John Strachan, hailed the company’s takeover as the “most significant transaction in British real estate in a generation”, while Hammerson boss David Atkins said that, in a changing retail market, only centres with a “sensational brand mix and leisure offer” would succeed.

Leisure has become an increasingly important part of the shopping-centre experience, as families spend the day shopping, eating and then heading to the cinema or bowling alley, all under one roof. Last year, Westfield went as far as hiring Grammy-, Tony- and Emmy-winning theatre and film producer Scott Sanders to create spectacular events incorporating theatre, music, dance, food and fashion in its centres.

Both Hammerson and Intu have worked hard to pull in shoppers in a digital age, developing their websites and enhancing their centres with wifi and apps to make it easier for shoppers to get what they want.

But the shares of property companies have been hit by investor concerns that the market has peaked and that they can no longer bank on rising asset values. Hammerson is paying 253.9p per share for Intu, which is a third less than the value of its centres. By comparison Intu rejected a 425p per share bid in 2010, claiming it was worth more.

Analysts say the numbers reflect a new reality as optimistic centre valuations, arrived at in good times, are questioned.

The deal will give Hammerson a stake in 12 of the UK’s 20 supermalls – those bigger than 20 million sq ft in size and attracting more than 20 million visitors a year – including Birmingham Bullring, Intu Trafford and Manchester Arndale. While smaller shopping centres and high streets are suffering, spending in British supermalls is expected to increase 7.2% over the next five years to £12.3bn, according to analysts at GlobalData.

Atkins indicated the combined group would look to sell £2bn worth of its UK properties and save £25m in running costs by pooling head offices and procurement of services like cleaning and security. While Intu owns more centres in the UK top 10 than Hammerson, others within its portfolio, such as those in Uxbridge and Nottingham’s Broadmarsh, score much worse in industry league tables and are expected to be on the list of disposals.

“Intu own some dreadful assets that have fallen foul of changing shopper patterns,” said one source, who suggested the timing of the deal was good for Intu as weakening consumer confidence pointed to a tough 2018 for retailers, many of whom are looking to exit their least profitable stores. The source claimed Intu had bolstered occupancy levels in struggling centres by letting stores on a temporary basis.

Marks & Spencer, Debenhams and Toys R Us are among the chains who have announced plans to close branches, while many former BHS premises remain empty. There is also speculation in property circles that big high street names such as House of Fraser could be among retailers considering a company voluntary arrangement – an insolvency procedure used by retailers to reduce their rent liabilities or close stores.

The Hammerson-Intu marriage, which has more significance for the UK, was upstaged by the sale of Westfield to Unibail-Rodamco, the European group whose centres include owns Forum des Halles in Paris. One property source described the Westfield deal as being in a different stratosphere, as the company’s only exposure to the struggling UK retail market is in London – where its centres in Stratford and Shepherd’s Bush rank in the country’s top three.

The decision to expand the Westfield London site with more stores and more leisure venues, including Ichiba, Europe’s largest Japanese food hall, and a boutique bowling venue, looks bold in the current climate. But from its position at the top of the tree, Westfield knows it is giving shoppers what they want.