Fragmented ownership in Shopping Centers - Cushman & Wakefield

Fragmented ownership in Shopping Centers affects the value of retail units

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Single ownership structure of Shopping Centers generates higher rents

Research from Barzien Khoshbakht, appraiser at Cushman & Wakefield, reveals that shared ownership of systematically developed small and large shopping centers has a negative impact on the value of retail units. Khoshbakht examined the relationship between the ownership structure and the value of retail properties in shopping centers as part of its master thesis "Real Estate Management & Development" at the Technical University of Eindhoven. In terms of rents the research evidently revealed that single ownership structures generate higher rents resulting in a positive effect on the property value.

A remarkable finding in the study is that shopping centers in fractional ownership are more difficult to manage. Parties need each other to make a success of a shopping. In addition to the property management, physical shopping centers require continuous innovation. Also, in a particular phase of the life cycle, a renovation is required which might result in relocation of tenants. In fragmented ownership structures, this is difficult to achieve.
Khoshbakht: "In my research I found a significant difference in rents between single owned and fragmented owned shopping centers. Fragmented owned shopping centers often lack renovation and marketing of the entire shopping center as well as deferred maintenance. These are all matters that have an important impact on the attractiveness of shopping centers and cause vacancy."
Khoshbakht pleas in his research for new shopping centers to be developed exclusively for one owner. Or, as an alternative to parties dealing with fragmented ownership, on acquiring retail units to acquire a majority stake. However, this is an intensive, costly and often not feasible strategy.

The value of the property in systematically developed shopping centers is obviously determined by more factors than just the ownership structure. The report also found that the following factors have a significant impact on rents:

  • The population with an increase of 10,000 inhabitants within a radius of five kilometers creates an increase in rents of € 1.60 per m2.
  • Income: an increase in income of € 1,000 per person in the neighborhood where the shopping center is located, allows for an increase of € 3.70 per m2 of rents.
  • Parking: Good parking facilities account for an increase of the rents of € 22, - per m2.
  • The age of the mall: an increase of one year at the age lowers the rent of € 0.90 per m2.

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