Until recently, Greece remained the final stronghold for the traditional corner shop in the European Union. That all changed in November 2005, when the country fell into line with the rest of the EU and opened its first big shopping complex.
The Mall Athens, a 58,500-metre square retail centre initiated by Lamda Development, offers Greek shoppers access to more than 200 shops, 25 restaurants and 15 cinemas, and has clearly captured the imagination of the public as well as developers and investors. The vast improvements made to transportation infrastructure in advance of the 2004 Olympic Games, twinned with rising personal disposable income levels buttressed by a robust economy, has led to a surge in rental levels as supply of prime retail space struggles to keep pace with demand. The latest market review published by Colliers International says: "Demand for high street retail space in major cities and primary areas remains strong, as vacancy rates are close to 0%."
Developers are responding to this imbalance with gusto. In the Attica region alone (where 95% of the population is concentrated in metropolitan Athens), 10 new shopping centres are due to open by the end of 2010. That still leaves Greece towards the bottom of a table published by Jones Lang LaSalle analysing the 2007/2008 pipelines of new shopping centres in the EU, in which only Ireland, Sweden, Hungary and Slovakia appear below Greece. That in turn suggests that there is still plenty of potential for the retail sector in Greece, where according to figures published recently by Savills there are just 55 square metres of shopping malls for every 1000 people. That compares with an EU average of 200, and with 235 in France and 231 in Spain.
Small wonder that the leading Greek developers are switching their attention away from the office market – in spite of its very powerful performance in 2007 – and towards the retail sector. Take as an example the strategy of Babis Vovis (BV), Greece’s largest quoted commercial real estate company, which is involved in all aspects of property development and investment, ranging from site acquisition and construction through to the lease, sale or retention of buildings. According to JPMorgan research, as of September 2007, 58% of BV’s portfolio was invested in the office sector, with just 26% in the retail space. Projects such as its new Votanikos mall development, located 3 km from the city centre in the western suburbs of Athens, are helping to redress that balance. "The development pipeline is heavily biased towards the retail and resort segments (about 87%) with only one office development underway," says JPMorgan.
Little wonder, too, that international investors began scrutinising the potential of the Greek retail sector some years ago, with HSBC leading the way by acquiring a 50% holding in The Mall Athens in 2006. Nicky Simbouras, partner and managing director at Cushman & Wakefield in Athens, says that in recent months interest from foreign institutional investors in the Greek market has been somewhat muted, which she attributes to the highly uncertain conditions in the global credit market. But she says there is no shortage of local demand to ensure that the retail projects in the pipeline will be a success.
Steady deal stream
Others echo the view that among international direct investors as well as developers, activity in the Greek real estate market has perhaps been less brisk than may have been expected two or three years ago. "There is no doubt that more and more international investors are looking at Greece, and we have seen a steady stream of deals over the last two years," says Kenny Evangelou, head of Eurohypo’s Greek branch in Athens. "But investment here is still low compared with a country like Portugal which is often regarded as a close proxy to Greece in terms of size, gross domestic product and population. Part of the problem is that there isn’t very much stock available for investors to buy."
Others agree that in spite of its potential, for developers Greece has not been an easy market in which to operate. At Babis Vovis, for example, investor relations officer Verinna Vangelatos says that tourism – as well as shopping centres – is a very promising longer term growth area for BV, given the under-development of its coastline compared with those in southern European countries such as Portugal and Spain. Analysts agree, with a Deutsche Bank research bulletin on BV reporting that ETA (the Hellenic Tourist Development Company) has "a wealth of real estate projects – according to some press reports worth €2 billion to €3 billion – which could boost Vovos’ pipeline project pool even if we only assume a small win probability for the company".
"There is considerable long-term potential for tourism given the investment that is being channelled into infrastructure, which is supporting the government’s objective of increasing tourism’s share of GDP," says Vangelatos. "But in the past it was very difficult for legislative and bureaucratic reasons to secure the necessary building permits for large-scale projects." The dilemma of burdensome red tape, she adds, has been compounded by the fact that there is still no centralised, computerised land registry in Greece.
Nevertheless, there are a range of other indications to suggest that the international investor community is looking more closely at the potential of Greek real estate. In the bond market, for example, legislation has been passed allowing Greece to add its name to the lengthening list of countries in the global club of covered bond issuers. EFG Eurobank, for one, confirmed in an analysts’ conference call that it is planning to issue a debut covered bond in the third quarter of 2008 as a means of adding to its "menu of options for greater flexibility and effectiveness" in its funding programme.
Others are likely to follow. "The Greek mortgage market is estimated to have a volume of around €150 billion, and therefore the Greek covered bond market has scope to develop," says Ted Lord, managing director and head of covered bonds at Barclays Capital. "Greek banks have a large customer deposit ratio compared with their lending. Additionally, their mortgage lending tends to focus on profit over volume, which suggests that Greek banks should find a place for covered bonds in their funding strategies."