A balancing act?

Do a shopping centre owner's responsibilities stop at the centre doors? Or do owners have an obligation to the wider community? An international panel, invited by Old Mutual Investment Group's property investment division, gathered in Cannes to discuss the issue

Published: 15 January, 2008

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The panel was hosted by Old Mutual directors Ian Watt and Ben Kodisang, and the discussion was opened by Watt. "Should shopping centres play a role in their local communities?" he asked. "In the end we're creating spaces for people to use."

"The shopping centre business is about attracting customers to spend money: they should be magnets," replied Chapman Taylor's Alex Zentile-Miller.

And Jones Lang LaSalle's David Hand added. "We have a fiduciary duty to get the best return for the investors. If you engage in community activities outside the centre, are you going beyond that duty?"

Old Mutual's Thabo Dloti echoed this perspective. "I want a return for every investor, and a shopping centre should be something that appreciates in value over time. But the balance is to get a good return immediately while still growing in the future."

Sonae Sierra's Alvaro Portela made a powerful case for centres taking a more interventionist stance in their communities. "If you think about the community you're thinking about your customers," he asserted, "so it's a business decision rather than just social responsibility. Yes, I'm interested in having nice surroundings but mainly because that attracts more customers. Only after that can we talk about being good citizens.

"For example in Porto, where we have several shopping centres, we work with the municipalities and other companies to do something for the local community, especially around schools in the poorest parts of town. But these are not our customers. They're not able to come to the shopping centre because they can't afford it."

And Old Mutual's Kodisang went further. "I'm a social capitalist," he said. "I agree that when you put a retail environment together you have to include those that don't shop as well. If you don't you'll get social problems that in time will undermine your investment."

Watt added: "Quite often a shopping centre is a functional thing for a particular consumer base. But if you build an icon that only caters to the top end you're just creating envy. You end up having to fence off your shopping centre."

"A shopping centre is not just commercial space. It's also social space," insisted architect Ken Greig. "For instance, in Hull ING decided to do a lot more than just build a shopping centre: they built a transport interchange, the new Hull Truck theatre and a music school. They've given back so much more and on Saturdays footfall in Hull city centre is up 40,000 now: it's brought more business to the whole town centre."

"The fundamental question is: 'what is a shopping centre?'" asked Apsys' Stephen Pragnell. "I've just been on the judging panel for the ICSC awards. We looked at 35 projects and 80 per cent of them weren't what you'd once have considered to be a shopping centre. We're seeing municipal spaces, theatres, art galleries and clubs as well as offices, residential and hotels. That's very much the trend and I just wonder if the words 'shopping centre' adequately define what we're doing."

And in the social context he added: "Manufaktura, our scheme in Lodz, bridges two communities. One side is middle class but the other is one of the poorest districts in the city. We've worked very strongly with that underprivileged community. Obviously that has a security impact but we've also built up a lot of goodwill. There is benefit in being seen to be socially aware."

Watt then opened up the discussion into a wider debate about town centres. "Cities have never been just about retail," he insisted. "It was only one of a number of activities. But now a lot of towns have become very stale. We've had 50 years of shopping centres and even 25 years ago people realised the model was flawed. So what should we be doing?" he asked.

"You're right," said the ATCM's Simon Quinn. "In the 1960s people only wanted the new. Now we've rediscovered authenticity." But he recognised that repairing the damage of those days is not easy. "In the US they created new downtowns - in places like Denver - and left the old downtown to fall apart. There are challenges in real town centres. Not everything goes smoothly."

Baltimore-based Brit Roy Higgs is able to talk about the US experience. "Where I live there's a charming downtown but retail is dying on the main street. It's called competition," he said. And he observed: "Shopping centres as a development type are fading away. For instance, we're working on a 60-acre site in Honolulu for General Growth Properties and it's been very successful. The locals shop there but so do the Japanese tourists. In fact the Japanese shop there because the locals are there.

"Before they started GGP went to all the local community leaders, picked 20 and worked with them first to ask 'what would you like to see in the centre?' Nothing that they came up with was irrational and it was all perfectly capable of being incorporated into the centre. We found community involvement can make a dramatic difference. It's certainly allowed us to develop at a much higher density."

And according to Sonae Sierra's Portela, community involvement can also deliver benefits on the leasing side of the business. "In Europe the strength of the multiples is enormous, but in Brazil the market is dominated by mom and pop stores," he said.

"Mom and pop stores can be a problem - they cheat on taxes and they cheat the landlord. But in some countries the very act of building a shopping centre can be seen as going against the community - you're providing competition for the local businesses. In Portugal, Italy and Spain there's an official policy of protecting them - traditional businesses are seen as part of the local community."

And this is even more the case in India, according to Watt. "In the Indian retail market, 97 per cent is informal," he pointed out, "yet developers want to lease their malls 100 per cent to international brands."

"We have tended to ignore the mom and pop stores," agreed PPZ's Aswin Puri. But he warned that a backlash is brewing. "Reliance built 900 hypermarkets in two years, and to achieve that they've had to go into some pretty small towns. Now seven states have an official boycott of that retailer, the first time a community has turned against a retailer.

"Therefore we think community involvement is absolutely crucial. We're looking to identify Indian retailers who are going to grow. We're actively looking to lease to local brands."

"In an African context what we're talking about is psychology," said Old Mutual's Kodisang, "and as the world becomes more similar there's a stronger need for a sense of identity. In our major cities we've seen edge of town office parks and shopping malls grow up to allow people to avoid the social problems of the CBDs. Basically, the rich want to be protected from the poor.

"But over the past 14 years we've seen a new middle class emerge - the black diamonds. They've still only grown from 5 to 20 per cent of the population, and perhaps they could grow to 40 per cent, but they find suburbia an extremely lonely place compared with the townships, which are very social. So now we're seeing developers building in the townships. For instance, we opened a 60,000 sq m mall in Soweto and the food anchor sold out within 15 minutes. "

Again, in Soweto, community involvement was essential for success, said Kodisang. "We partnered with the local government to hold meetings every Sunday in order to engage with the local community. People know what they want, and they said they wanted an enclosed mall - they'd have been insulted by anything less. We have to be flexible in our mindset," he concluded.