A decade ago, shopping centres in the UK seemed to be on borrowed time, written off as an asset class under threat. E-commerce was steadily eroding foot traffic, and after the pandemic shuttered storefronts, institutional investors abandoned the sector in droves.
But Europe’s shopping centres are staging a comeback. Those that survived are stronger than many expected. The recovery is driven by a shift in what consumers want from physical retail and the deployment of AI-powered intelligence systems that are reshaping how landlords understand their assets.
Where department stores once served as anchor tenants, that model collapsed spectacularly when John Lewis, Debenhams and House of Fraser faltered. What replaced them was a carefully chosen blend of food & beverage, leisure, health & beauty, and experience-led retail alongside traditional fashion.
Bristol offers a telling example. The reopening of a flagship Marks & Spencer drove a measurable foot count increase across the entire centre. A new luxury cinema format followed, extending the evening economy and pulling more spend into restaurants and bars.
The lesson, said Rob Wilkinson, who took over as CEO of London and JSE-listed retail landlord Hammerson at the beginning of the year, is that experience-led retail works only when all the elements — anchors, leisure, dining, parking — are engineered together. Hammerson’s portfolio of 10 centres sits across the UK, Ireland and France.
Brands from the Spanish clothing company Inditex, including Zara, have moved aggressively into the space vacated by failed department stores. Inditex is now the single largest, by space, in Hammerson’s portfolio,
Hammerson executives were in South Africa to touch base with local investors. Two of their five biggest investors are South African: the PIC and Coronation.
Wilkinson’s message was that the retailers winning today are those who have integrated physical and digital channels with the right locations. These centres are urban flagship destinations and face no meaningful new competition. Shopping centre valuations remain 20%-40% below replacement cost. At those levels, no developer can build a new centre and make the numbers work.
Occupancy at flagship assets is at or near capacity. Growth, for operators such as Hammerson, will come from acquiring distressed or under-managed centres — a pipeline that Savills research estimates could exceed £3bn in the UK alone over the next 12-18 months — and from developing the land around dominant centres. Mixed-use development, including residential in particular, is increasingly attractive, given strong rental growth and transport connectivity.
Perhaps the most striking development is the deployment of AI-powered customer intelligence systems. Using camera technology that assesses shoppers’ clothing, bags, gait and approximate demographic profile, leading operators can now map customer journeys in real time. They can see which stores shoppers enter, which they leave carrying a bag, how long they linger in front of advertising screens, and where they go next.
The data is also revealing counter-intuitive patterns about how retail works. Cross-shopping analysis shows which brands drive traffic to each other; which tenant combinations extend dwell time across the full length of a mall; and where cold spots exist that may reflect a weak tenant rather than a layout problem.
The technology is still in the early stages. Only a handful of operators are deploying it across Europe, most notably Hammerson and Unibail-Rodamco-Westfield, which collaborate on the platform.
A further revenue opportunity is emerging in parallel: the digital advertising screens embedded in centres generate income through intermediary media companies. As those contracts come up for renewal, landlords with rich audience data are positioned to sell advertising directly and precisely.
Wilkinson says customers who shop both in-store and online with a given retailer will spend multiples of what purely online or purely in-store customers spend.
The economics of free home delivery have proved unsustainable for most retailers, who have begun charging for it. This is nudging customers back towards in-store collection and, by extension, back towards the physical shopping centres that house their stores.
And there are unexpected consumers. The demographic driving foot count and spend in recovered centres is Generation Z, those who were teenagers during Covid and so were denied the social experiences their predecessors took for granted. It turns out the generation that supposedly existed entirely online wants exactly what good physical retail has always offered: somewhere to go, something to do, and stuff to buy.
Local retailers are investing heavily in omnichannel strategies that integrate physical stores with digital platforms
South Africa had a different experience. Institutional investors never abandoned shopping centres. E-commerce penetration is far lower, leaving bricks-and-mortar retail structurally intact. And malls play a special role in South African life: high crime rates and unsafe public spaces have made large, secure complexes the default destination for socialising, as well as shopping and dining.
But the insights from data are as relevant for the local market as they are for the UK.
Local retailers are placing greater emphasis on in-store experience, while investing heavily in omnichannel strategies that integrate physical stores with digital platforms.
Gavin Jones, Growthpoint Properties’ head of asset management, says Covid, the rise of e-commerce and prolonged economic pressure have “reshaped consumer behaviour and accelerated the divergence between dominant, well-located centres and weaker, undifferentiated assets”.
Growthpoint’s portfolio, he says, sits on the right side of that divide. Vacancies, tenant retention, renewals and arrears have all returned to or surpassed pre-pandemic levels. Turnover is growing ahead of pre-Covid benchmarks, and while foot count remains marginally behind, dwell time and spend per head have recovered. “Sectors that were under severe pressure — fast food, coffee, family dining — have bounced back well.” Discretionary apparel remains the exception.
Consumer focus has shifted towards nondiscretionary spending: groceries, health and beauty, convenience services. Jones expects online sales to reach mid-teens penetration by 2028-2032, in line with global benchmarks. Online apparel is already near global levels; grocery e-commerce is accelerating.
South African portfolios have had to navigate declining cinema relevance, Game-to-Walmart conversions, Pick n Pay’s recovery and Edgars’ space reductions. “These large-space users are not easily replaceable or come at great cost in terms of functional obsolescence,” says Jones. Traditional anchors, he adds, have lost some gravitational pull as they’re replicated across most malls.
What’s driving foot count now is “experience”: food and beverage clusters, wellness and beauty, leisure, events, free Wi-Fi and sports activity areas.
Like their global counterparts, South African landlords are increasingly turning to AI-powered analytics to understand shoppers, optimise layouts and strengthen lease negotiations.
Evan Robins, portfolio manager at Old Mutual Investment Group, notes that for more affluent consumers, the convenience shopping centre has been reimagined. He says omnichannel strategy is critically important in the local market, even if South Africa lags behind digitally mature markets such as the UK, where online retail commands a greater share.
On the data side, some South African shopping centres already deploy sophisticated foot count tracking, including the ability to monitor cellphone movement by using in-centre wi-fi networks.
Robins argues that those building large, high-cost shopping centres with extensive structured parking may struggle to justify their economics in today’s environment. Leaner, lower-cost strip malls with more modest parking provision can remain viable, provided they’re in the right place.
Independent economist John Loos sees great potential for physical retail to differentiate itself from online retail. But he adds that from personal experience he’s not yet convinced they are always getting it right. When making a considered, high-value purchase, he often runs into the same challenge. He expects expert guidance regarding various product models, but often doesn’t get it.
Loos finds that many stores aren’t utilising their potential advantages. Physical shops often demo only a fraction of what’s available online, and often, on inquiry about an item, they search the system only to find they are sold out of something they normally stock. Grocery chains have long used automated stock management to flag low inventory before shelves run bare, but many lower frequency (and higher value) retail stores don’t appear to have followed suit.
Products that beg to be handled — devices with interfaces to navigate, gear that needs to be assessed — are often sealed in boxes or displayed without active software loaded. The chance to properly test what you’re about to spend serious money on simply isn’t there.
Most limiting, says Loos, is the knowledge vacuum often apparent on the shop floor. This is where physical retail could distinguish itself. Instead, he often encounters staff who know little about the products they’re selling.
To some, that retail jargon word “experience” means being entertained in some way on one’s shopping day out. But actually, says Loos, it should be about great service, the type that online retail won’t easily be able to provide.
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