12 February 2019
Only the right leisure experience will add value to your retail asset
In recent years the words ‘leisure’, ‘entertainment’, and ‘food & beverage’ (F&B), have become buzzwords throughout the retail property industry. Structural change caused by the rapid rise of online shopping, smartphones and click & collect, has left those managing retail assets racing to incorporate new leisure and entertainment concepts. If you offer experiences that can’t be replicated online, footfall, tenant sales, and rents will automatically increase, won’t they? The answer is - not necessarily - and careful planning is required.
In our view, some landlords and asset managers seem to have lost direction. In the rush to incorporate leisure or entertainment concepts as quickly as possible, adequate time isn’t necessarily allocated towards strategic thinking. Important questions around which concepts will work and unlock value at retail destinations are not always adequately considered.
Often exciting new concepts have failed to move the dial on footfall and therefore on asset performance. There is no specific formula for incorporating the right leisure format, but there are universal steps that should be taken.
Firstly, don’t expect every leisure or entertainment concept to work in every retail asset. There is no ‘one size fits all’ approach. The first fundamental step is understanding the demographics of the population surrounding your retail asset and introducing concepts that will align to their interests. If the catchment area has a higher millennial or younger population, concepts such as private cinema rooms for small groups, or virtual reality, are two examples of good options. In a more family dominated area, trampolining, adventure playgrounds or kids-focused edu-tainment (blending learning with play) will be more relevant. But a decision on which type of leisure activity is incorporated should not be made until relevant market research has been undertaken.
Last summer, Pradera Retail Asia signed an exciting agreement with Merlin Entertainments plc, to open the ‘Shanghai DUNGEON’ within Mosaic Shanghai. Already a recognised landmark in London and 12 other cities around the globe, The Shanghai DUNGEON opened on October 25 this year and is set to become an important destination on Shanghai’s Entertainment and Leisure map. With its 10 themed experiences featuring immersive storytelling professionals, visitors are able to see, hear and smell the ten legends of old Shanghai's colourful past and enjoy a thrilling drop ride.
Mosaic Shanghai is one of the four shopping centres in China which are owned by MIRA1 managed companies and is an asset managed by Pradera Retail Asia (PRA). The Shanghai Dungeons is intended to complement an ongoing redevelopment at Mosaic Shanghai and its positioning as a leading destination for shopping and entertainment on Nanjing Road East. However, the decision to incorporate the ‘DUNGEONS’ attraction wasn’t taken lightly.
Through market research, PRA knew that 50% of people visiting Mosaic Shanghai are tourists, while half of all the locals who visit are millennials. Both groups tend to seek unique experiences and are prepared to spend money on them. This, combined with Mosaic Shanghai’s high traffic location meant ‘DUNGEONS’ was a viable option, which we believe will help drive footfall and asset performance.
Furthermore, floor space typology is another important consideration. Which leisure, entertainment or F&B concepts will work in the space? For example, quality trampolining parks demand minimum ceiling heights of 5 metres. The latest Virtual Reality attractions allow guests unrestricted movement around a room, however to do this they require an open plan space free of columns. At Parc Valles, one of the centres managed by Pradera in Barcelona, we have recently secured a deal with Climbing Planet to open a free roam virtual reality experience, Zero Latency, over 600 sqm GLA by the end of the year.
Full aquariums and even smaller scale aquariums require a study to ensure the structure can handle the weight of the fish tanks, as we have recently experienced with the Oceans of Colours aquarium, which opened on Mosaic Xi’an’s ground floor in September this year. Taking into consideration these types of constraints early can save significant time and abortive design costs. From an asset management perspective, consideration must also be given to reconfiguration works. Questions such as: where
1 . Macquarie Infrastructure and Real Assets (Hong Kong) Limited
can new leisure concepts be placed to best drive footfall and how can more effective wayfinding facilitate this? What will the impact on existing tenants be? At Mosaic Shanghai for instance, it was important to comply with new and challenging fire and building regulations in order to accommodate an entertainment rather than F&B use class. This meant having to design and install brand new fire escapes through five floor levels, while minimising disruption to existing tenants and day-to-day operations.
Incorporating new concepts may indeed be exactly what is required to turn a shopping centre around, but the cash outlay could be significant on both sides of the equation which is why taking the time to do detailed analysis is important.
At Cevahir Shopping Centre in Istanbul, which Pradera manages on behalf of St Martins Management Company, we undertook reconfiguration works to include Turkey’s largest indoor amusement park. These are innovative new initiatives for the retail assets, however it was important to ensure buy-in was given from all parties. In-depth due diligence was required to build the necessary confidence to make it happen.
Another common mistake some landlords and asset managers make is seeing leisure as a replacement for traditional anchors, such as major department store chains. In general, leisure concepts should be one of many ‘mini anchors’, and form part of the overall tenant mix that drives traffic to an asset. If a shopping centre is being reconfigured to include a children’s amusement park, is it complemented with family friendly food and beverage outlets and retailers? Is there “branded playground” retail space, where physical space allows people to touch and experience what they may ultimately buy online?
Attention must also be paid to the lifecycle of a new concept before it is introduced. Trends come and go, and some entertainment offerings will never be more than fads, whereas other concepts such as aquariums, are easier to update and will be more timeless. One way of minimising this risk is working with concepts that have proven intellectual property.
One final challenge for retail operators is to find an economic balance as many of the leisure and entertainment operators will not support the same level of fixed rental paid by traditional retailers. Therefore, an active asset management strategy which drives rental levels on the surrounding units supported by increased footfall is imperative.
In order to adapt to the fast-paced changes sweeping through our industry retail destinations must become more than places to just ‘buy stuff’. Providing experiences you can’t find online, or experience at home, is undoubtedly a large part of the answer.
Alison Rehill-Erguven is Chief Executive Officer of Pradera Retail Asia, China