New mega-mall challenges depressed shopping environment

  • 2010-08-25
  • By Anna Kravcova

RIGA - In these times of recent economic slowdown and social depression, new developments in the retail industry continue to forge ahead. The capital of Latvia, a country which was once considered to be the most affected by global crisis, with declining prospects for consumer spending capacity, is preparing room for a new shopping mall with total leasing space of 29,700 square meters. The launch of Galleria Riga is set for the end of September and promises to surprise people with a totally new eye-catching concept.

According to the CEO of Galleria Concept, Petter Johnsen, one of the main attractions of the new shopping center is its well-designed organizational pattern. Shops which offer goods of the same type will be grouped together, so that a person will find it easier to shop. The same pattern was used in the Galleriet shopping center in Bergen, Norway, one which has proved to be among the most successful shopping centers in Scandinavia, registering the highest sales turnover per square meter.

“Part of Bergen’s success has been that people find it very convenient to shop. Three or four years ago there was opened another shopping center, located relatively close to Galleriet Bergen. However, it did not take any turnover away from us. All of this is due to our logistics and our concept,” comments Johnsen.

Galleria Riga promises to dazzle Latvians and tourists alike by bringing in new shops: about half of the total of approximately 200 shops and restaurants will be new to the Baltics. One of them will be Piazza Italia, an Italian family clothing store. Restaurants, located on the top floor, will include Chinese and Japanese cuisine, an oyster bar, a wine bar, a coffee shop, an Irish pub and the hamburger joint Hesburger.

Johnsen gladly states that many Latvian retailers have already shown an appetite for the space in the mall, with tenant occupancy currently reaching about 80 percent. “We have a bigger list of tenants that want to get in, more than we have space left for,” he says. However, in spite of the buoyant tenant demand, not all the shops will be opened in September. According to Johnsen, tenants will be paying a rent that ranges from 50 euros per meter for the best space, to 21 euros per meter.

Real estate agency Latio says that lease prices in shopping centers have fallen drastically from their peak just a couple of years ago, and that this year they have reached their lowest point. The most advantageous locations in the city center are going for approximately 25 euros per square meter, while the average rent in a shopping center situated in the city center is only 15 - 20 euros per meter.

Galleria Riga was initiated in 1999, when Johnsen first turned his attention to the Latvian retail market. “We bought a bigger piece of land, which was first available, and continued to outbid for other properties which we needed to implement our goal. We knew that this would take time, but we were ready to wait. Sometimes we hoped that we would move on a little bit faster, but there was no particular schedule. Generally we are happy that we are coming to a conclusion, and that the end is in sight,” he says.

Some retail experts do not consider the opening of a new shopping mall to be advantageous in today’s economic circumstances. Frode Gronvold, the CEO of Linstow Center, believes that the time for new developments still has not come. “I must admit that it is unfortunate for everybody that one is opening new shopping centers in a situation when the market is so unstable, as it is now. People are much more cautious of how much they spend. They are more careful about choosing new concepts, and products, and travel longer distances, which means that it is very hard to open something in the market. As a consequence of this, the retailers will have to share the turnover with more shops,” he notes.

The Latvian Central Statistical Bureau reports that in comparison with the second quarter of 2009, this year the retail turnover has slumped by around 6 percent. The volume in food retailing decreased by 8.8 percent, while in the non-food sector the turnover has shrunk by 4.4 percent. However, comparing the first and the second quarters of 2010, there has been a small increase, of 1.7 percent, in sales.

The daily Diena reports that the Ministry of Finance believes that the situation with retail trade is stabilizing. 
In contrast to such positive remarks, other business analysts are more skeptical. Analysts at  Latvijas Krajbanka and DnB NORD point to the income inequality which has resulted from the high rate of the unemployment, saying that this will definitely limit consumer activity for a long time.

In spite of such negative sentiment, Johnsen and his team are rather upbeat about their project. “As we see the current economic situation, this is not a bad time. Latvia is not suffering from a downturn anymore. I think people still have purchasing power and adapt to new situations quite fast. If you look at Latvia, considering the increase in tourism, and future intentions to expand the airport, actually there are a lot of positive signs on the market.” he says.

Competition from local developers remains strong, while the experience of other shopping centers is not very encouraging. Johnsen, however, believes that Galleria Riga will still be at an advantage: “It is true that our colleagues are having difficulties, but this could be explained by the fact that they have a completely different location. I think that we have the best position in the center. We are absolutely in what we consider the best shopping area. Before the Second World War this was the real shopping district, and history tends to repeat itself. We expect a minimum of 30,000 people entering our shopping center per day, and we will be very disappointed if it is not more.”

Commenting on the new mall opening, Solvita Ponomarjova, a specialist in the real estate company Latio, confirms that the given district, located between Brivibas and Terbatas streets, is very attractive for a shopping mall. “It happens to be close to the Old Town and many large hotels, such as Radisson Blu Hotel Latvia, Radisson Blue Hotel Elizabete and Tallink Hotel Riga. This district is characterised by a big number of tourists, who will definitely want to visit Galleria Riga.”

On the other hand, she notes that one can count on a substantial foreign customer flow only in the summer, the tourism season. Everyday people traffic in this area is still very small, and one cannot rely on its sharp increase in the near future. “Other shopping malls located in the city center, such as Stockmann and Galerija Centrs are in a much more advantageous position, and one can notice the high density of traffic there. The lack of people flow was one of the key reasons why tenant turnover was quite high on Dzirnavu street. Thus, Galleria Riga’s owners should also take this factor into consideration, and be prepared for the consequences,” she cautions.

Marcis Budlevskis, board member of Linstow Center management, also considers that the new shopping mall location will be one of the possible challenges for its owners. “Human traffic on Dzirnavu street is very low and, as a result, Galleria Riga will have to attract all its consumers starting from the zero point. People are not used doing their shopping in that area, and changing consumer habits is a very long and expensive process. Everything will depend on the project quality,” he says.

Another problem mentioned by Ponomarjova is the relatively small number of parking places in the neighborhood. “It will limit the number of potential local consumers who are traveling by car. Dzirnavu street has one-way traffic. Blaumana street crosses Brivibas street, but it does not allow one to make a left turn onto Brivibas. In case of heavy traffic, in searching for a free parking space, there will be traffic jams.”

The manager of the Riga Council Department of Transportation and Traffic Safety, Talivaldis Vectirans, says that ‘Galleria Concept’s technical plan foresees about 120 parking places. Traffic flow attracted by the given amount of parking facilities is expected to be relatively small, and will not have a crucial effect on the situation on Dzirnavu street, neither in the morning nor in the evening.’

Although Johnsen agrees that the new shopping center will definitely affect traffic flow in the city center, he believes that Galleria Riga has a sufficient amount of parking facilities. “It will be the first time that we have a shopping center in the city center with parking. I do not know of any big city shopping centers that have a special amount of parking anywhere in Europe,” he adds.

With shoppers awaiting the grand opening, real estate professionals are closely watching the progress of this bold city center project.