Is Israel over-malled?

In the first half of 2013, 200,000 square meters of commercial space were added nationwide to the more than one million square meters built in 2009-12. Nor is this the end: plans are in the pipeline for the construction of 123 new shopping centers, with aggregate space of 1.4 million square meters.

Is there really a need for so much shopping space? What will happen to the existing malls? Will Israel be hit by the phenomenon of ghost malls, which has mercilessly affected shopping centers in the US (you won't believe what you see on Dead Malls) and China? A study byCzamanski Ben Shahar & Co. describes the evolution of the shopping center - and the next stage, which requires developers and mall owners to get ready. "The days are over when a mall developer would succeed wherever they stuck a peg in the ground," says Czamanski Ben Shahar VP Meyrav Einstein-Siano.

Turning to Taibe and Umm al-Fahm

Israel currently has 8.5 million square meters of commercial space. The problem is that some malls and commercial centers have become obsolescent over the years (the first was built in 1987), and the stores in them have closed, and other malls suffer from tenant flight to newer and more up-to-date malls. This means reduced demand for commercial space, lower return per square meter, and expectations of surplus commercial space.

The Czamanski Ben Shahar's report states, "In the life cycle of malls, a new stage in the sector's development begins at 25. New varieties of shopping centers 'prey' on the old ones. The old centers will have to undergo refurbishment and change."

"Developers must think about differentiation," says Einstein-Siano. Part of this differentiation is made by targeting new segments of the population, such as power centers for the Arab cities of Nazareth, Umm al-Fahm, and Taibe. "Another kind of differentiation is design to create a life style center. For example, in Ashdod, the Big Fashion Ashdod is under construction, a new power center that emphasizes recreation and entertainment, and which will look like a cobblestone street. An open shopping center, with an emphasis on the experience, will be built in Gan Yavne," she says.

"The problem is that not every developer thinks about differentiation in advance. In Mevasseret Zion, not far from the Harel Mall, Rami Levy is building another one. These malls will have to differentiate themselves, and it's a real problem, because the purchasing power there is not great."

Rami Levy Chain Stores Hashikma Marketing 2006 Ltd. (TASE:RMLI) and Horizon Gold Investments Ltd. are building the 12,000-square meter mall in Mevasseret Zion.

"Some shopping centers have a concept. We're seeing more attempts to create discount and outlet malls, and more discount stores will be upgraded to malls. Some of them will have to convert space to other uses: offices, jamborees, and entertainment areas. Those that fail to make the change will be abandoned, demolished, and the site will be rebuilt for other uses. We're already seeing commercial centers where the second or third floor is used by healthcare funds, banks, offices, banqueting halls, and even activities centers. No big investment is needed for these existing spaces," says Einstein-Siano.

It should also be remembered that differentiation is not the answer to everything. Mordechay Zisser once tried to build a "different" mall at the Herzliya Pituah Marina, but the Arena Mall failed to get off the ground, and the concept of a cultural and entertainment center in a mall did not prove a success.

Despite the surplus and density, there are still places lacking in commercial space. Czamanski Ben Shahar lists towns with no large shopping centers, including Lod, Yavne, Beer Yaakov, Gan Yavne, Sderot, and the Etzion Bloc. It also lists cities where the amount of commercial space is low compared with the purchasing power, including Bat Yam, Petah Tikva, Hadera, and Jerusalem.

Power centers are planned for Yavne, Kfar Tavor, Upper Nazareth, Sderot, Netivot, Eilot (near Eilat), and other locations. Malls are planned for Nahariya, Acre, and Tiberias (which has Israel's highest commercial space per capita in a city with only a mid-level socioeconomic ranking and where it is hard to rely on the buying power of tourists given the 52% hotel occupancy rate in early 2013). In some of these towns, such as Beer Yaakov, shopping centers are already under construction, or are in the planning stages.

One area where commercial development is expected is Kiryat Ata, the site of the next IKEA Israel store, scheduled to open in March 2014, adjacent to a large mall under construction by Shikun & Binui Holdings Ltd. (TASE: SKBN), which will compete against the Kiryon Mall of Melisron Ltd. (TASE: MLSR) and the Kiryat Ata Mall of Azrieli Group Ltd. (TASE: AZRG).

"The new mall is differentiated by its proximity to IKEA, which is a strategic location. Roads in the area are also due to change, which will work in their favor. The Krayot Bypass road has been built, Road 6 will go there, and the whole location will become a focus for the entire metropolitan area. IKEA will attract buyers from the entire region, even from Kiryat Shmona, from where people once had to go to Netanya. All in all, there are many growth strategies, but you should think very carefully about the opportunities," concludes Einstein-Siano.

The US has moved on

The next stage of the evolution of shopping in the US, which began with malls that weakened city centers and markets, and moved on to strip malls and outlets, was declared a long time ago - ecommerce.

But ecommerce lags in Israel. A "Globes" survey in July found that 70% of Israelis were willing to pay 5% more to shop on an Israeli ecommerce site, but mainly for goods that they don’t buy in stores anyway, such as movie tickets or tourism products. Most companies do not yet offer a range of goods or a shopping experience that equals the brick-and-mortar experience, giving, at least for now, an edge to air-conditioned malls that are close to home.

Published by Globes [online], Israel business news - www.globes-online.com - on August 5, 2013