Sustainability

Shopping centres' impact on the environment is now a major concern. At this year's round table debate, opinions were divided

Published: 14 December, 2006

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Sustainability is moving fast up the agenda for the shopping centre industry, and Old Mutual's annual round table at the Mapic convention in Cannes showed that this is far from being a UK-only phenomenon.

Ian Watt, head of Old Mutual's international operations, made it clear that this was an issue that could not be ignored. "If we continue to consume at our current pace, then by 2050 we'll need two planets to provide for us. And if all the world consumed at US levels, we'd need five planets," he said.

According to David Cadman, chairman of environmental consultancy Upstream, the industry is now recognising that it has a role to play. "There's been an astonishing turnaround," he said. "I think the tipping point came about three years ago. Prior to that environmental action was just seen as an additional cost, but now people are saying: 'We know we need to do something, but we don't know what.'"

In the UK, the government's Stern review has warned of a coming economic depression that would overshadow even the 1930s unless urgent steps are taken. And Cadman warned that shopping centres could be particularly vulnerable, especially out of town. "Shopping centres' environmental performance is weak," he said. "They have high energy embedded in their fabric; their energy use is high; they produce high levels of waste; and there are big transport issues."

Mike Kercheval, US-based president of the International Council of Shopping Centers, hit back. "I'm troubled that David feels shopping centres are worse than other sectors," he said. "It's an unfair comparison. I think we need different metrics for different sectors.

"I hear people all the time saying it's too expensive to take action, but in reality they just don't know what the costs are."

"But the risk to the industry is that if you don't do something it's going to be imposed on you by someone who doesn't understand the industry," interjected Watt.

"Then imposition might be better than being the first mover," said Kercheval. "If everyone has to do it then at least it doesn't become a competitive issue. I look at it as similar to the asbestos problem that hit the office sector some years ago. Office owners wouldn't strip out asbestos because they couldn't get any extra rent for doing so. It took legislation to make it happen."

"I'm glad we've touched on competition," said Alvaro Portela, chief executive of Sonae Sierra. "Of course there are costs involved but I believe we have to do it. We have to do it because of legislation. We have to do it to take care of the planet. And most importantly we have to do it to compete.

"We're already using it to differentiate our centres from the competition, and in practice we can do lots of things that are cheap. For example, we segregate our rubbish to maximise recycling, we save on water and we save on energy.

"I'm surprised my American colleague is worried about costs. Saving on energy reduces the common charge to tenants. How could they have a problem with that?

"But to me the big issue is transport: how can we reduce the number of people coming by car? I don't want my customers to go away, but ultimately the answer lies with the automotive industry."

Sunil Reddy runs an infrastructure business in India, as well as developing shopping centres. "We build in desalination plants as part of our normal planning," he said. "And in Hyderabad we can charge US$1 per sq ft more in rent to pay for better-quality water. So I don't think we can look at this from a cost perspective. In commercial development, recycling pays back and for us it's also a marketing tool."

"In the US there was only one covered mall built last year, but in India it was 300 or maybe 400," said Watt. "And if they get it right it's going to have a big impact. For the US the issue is more about converting existing stock."

"But in reality sustainability isn't an issue in India," said Property Zone's Kunal Premnarayen. "In fact, 96 per cent of schemes aren't implementing it. I think bodies like the ICSC have a big role to play in education on this."

Tim Eynon has recently entered the property market in India through the Liberty International-backed Prozone, and he is rather more optimistic. "In India we're building more shopping centres than anywhere else," he said. "I see this as an opportunity to stand on everyone else's shoulders and really take a lead."

"Already in the EU the ICSC is introducing the Resource Awards that recognise contributions to sustainable development," said Stephen Pragnell, who as well as heading Apsys Polska is president of the Polish Council of Shopping Centres. "In Poland we're still an emerging economy and our government has other priorities. Sustainability just isn't number one on its list and so we can't look to the government to bring in any legislation that will affect our industry.

"Our first generation malls, built in the 1990s, were built purely for profit. Now they're coming up for refurb and are being adapted to a more sophisticated consumer. But the notion that this takes investment is changing the whole shopping centre industry."

"The guys that have made super profits from yield compression are those that can best afford it," noted Watt.

"The European markets have seen massive yield compression," agreed Cadman, "but it'll correct. The question then won't be how much money can I make? It'll be how can I minimise my losses? Then sustainability will be positively correlated with value. After all, institutions are only buying streams of income, and if they think they're under threat then they'll factor that into value."

Although he's now in property, Eynon's background is based in the chemicals and textiles industries.

"We spent billions of dollars developing a process to replace oil-based polymers with plant-based polymers," he said. "But sadly, at the end of the day, the consumer has to buy into this. They won't pay for an environmentally friendly product - they'd rather save themselves 50 cents."

"But the person who buys a building is a consumer of a kind, and they're factoring it into investment decisions," insisted Cadman. "For example, a carbon tax in the UK would put out-of-town retail at risk. I know of one institution that's no longer buying out-of-town for that very reason."

"In countries where energy is already an issue it's affected design much more than in countries where it's not an issue," said Watt. "In South Africa, when the nuclear power plant in Cape Town went down, only one mall in the city was allowed power - and that happened to be the one that was a tourist destination. Now, we're building malls with natural light so they can still trade when the lights are down."

"In Poland we have some Soviet-era malls that are naturally lit, and they only trade from 7.30 to 3.30 when it's always light," remarked Pragnall.

"And in South and Central America we're seeing a new generation of open-air schemes that have lower operating costs and, because of that, are very successful in attracting tenants," said Kercheval.

Local initiatives can make a big difference, according to Cadman. "For instance, I know of one UK centre that's planning to allow customers to pay an additional 10p levy on top of the car parking charge that will allow them to offset the carbon footprint of their journey to the mall.

"The local managers on the ground are the best people to achieve change," asserted Cadman. "But you have to incentivise them to reduce consumption," said Cushman & Wakefield's Phil Evans. "For example, in the UK, Hermes puts pressure on all its managing agents by getting them to compete for a sustainability award."

"But a bigger challenge is getting the tenants to adopt the same environmental; standards as the mall," said Cadman.

"A lot of retailers are adopting an environmental stance - people like Body Shop and Patagonia," replied Eynon.

"And Wal-mart is taking an industry lead, to counter their declining popularity," said Kercheval. "They're introducing solar power, skylights and the re-use of water, and already they're finding they're making money from it by reducing costs."

"Their target now is to get the payback down to just two years," said his colleague Jay Starr.

But environmental action can have unintended consequences, according to Sonae's Portela. "In Portugal we're now enforcing EU regulations on air quality inside all public buildings," he said. "It's partly about having a lot of people about and bad ventilation. We have a number of centres with over 20 million visitors per year and the systems weren't designed to cope with those numbers.

"We're installing systems to monitor the air quality and we communicate that to the shoppers via our plasma screens in the malls. One thing we discovered was that in winter our centre managers weren't turning the air conditioning on until 11am to save energy, but as a result we had carbon monoxide leaking in from the car parks."

The host, Ian Watt, was allowed the final word in the debate. "The weights are starting to move," he said. "Our consumers are beginning to demand a healthier way of life."