AFI hopes to make Hay while the sun shines

Bucharest currently has six large shopping centers in the pipeline, totaling over 300,000 sqm, each of them in different stages. Playing a prominent part in this is Israeli group AFI Europe Romania. CEO David Hay tells The Diplomat – Bucharest about the company’s ongoing projects and future local agenda

May 2012 - From the Print Edition

„It’s crazy outside,” says David Hay, CEO of AFI Europe Romania, referring to the pouring rain, as he enters his cozy office at AFI Palace Cotroceni.
He is just returning from the construction site of the first out of five office buildings that will make up AFI Business Park Cotroceni. The workers are giving the final touches to the finishings of the first building, due for completion in August this year.
The manager’s busy schedule is understandable because work on the second building of the compound is also due to start, as most of the tenants, who have already preleased 50 percent of the office space, have asked for additional spaces in the second block.
For the first building, AFI Europe is working with general contractor Danya Cebus Rom, but the Israeli company has not yet made a decision regarding the construction company that will be selected for the second.
The thunder and torrential rain seem in keeping with the unpredictability of the European economic forecast, with its direct impact on consumers’ wallets and therefore the expectations of retail developers – and the weather itself doesn’t help, convincing shoppers to stay at home.
Hay tells The Diplomat – Bucharest that this year brought a nice surprise in AFI Cotroceni’s data on its traffic and retail operations, even though the CEO is prudent when it comes to the mall’s revenue expectations for this year.
“There will be growth, that is for sure,” Hay affirms, while studying the numbers on his computer.

Synergizing office and mall

With registered traffic of 51,000 visitors in the first quarter of this year, the 300 rented spaces of the mall posted a sales increase of 24 percent in the first two months of 2012. Says Hay, “It was strange to register such large traffic in a month with weather as harsh as February.” In fact, according to the CEO, since the launch of the mall, retailers’ sales have increased y-o-y, with approximately EUR 105 million of sales registered in 2010 and EUR 182 million posted last year.
For the first two months of 2012, retailers in the mall reported estimated total sales of around EUR 15 million, compared with EUR 11 million in the same period of 2011. The synergy between the shopping center and the office building tenants will be reflected in sustained traffic for the mall, says Hay. On a land plot of 15,000 sqm, adjacent to the AFI Palace Cotroceni shopping mall in Bucharest, AFI Europe will develop an office complex consisting of four office buildings and a hotel. According to the plans put forward by the company, each building will comprise 11 floors and will connect directly to the shopping mall. In addition, each building will have 170 underground parking spaces. The first block will consist of 11,000 rentable sqm.
For this year, the estimations look good, says the CEO, but he remains cautious over revenue expectations for the mall, “due to the local and regional lack of economic predictability”. In the last two years, the mall’s revenues from rental activities were estimated at around EUR 23.8 million.

Managing it all in-house

Hay outlines the main measures the company has taken so far to underpin its performance against falling consumption. “First, we improved the tenant mix, by terminating contracts with non-performing tenants, and we are focusing on the synergy between the mall and the office buildings.” The mall’s management (which is always selected in-house) decided to replace up to 30 percent of the tenants, by cancelling contracts and reshaping the mall’s retail mix. Currently, the AFI Europe Romania team consists of 45 people.
Besides the fashion retail names already announced as entrants to the mall, David Hay says that he is expecting further newcomers to fill the remaining retail space, which represents around 3 percent of the total GLA. Space in the office building to be completed by August this year has already been 50 percent pre-leased with demand coming mostly from IT companies, due to the location of the mall, near Politehnica, says Hay. The total investment in the new building is estimated at over EUR 20 million, with EUR 13.4 million coming from a loan taken out from UniCredit Bank.
In addition, according to the CEO, some of the tenants have asked to expand their rented spaces, prompting the Israeli company to press ahead with work on the second office building. The first is already leased, at a price of EUR 15 per sqm.
“The prices are calculated according to the area. I do not agree with studies claiming that office space prices have dropped to a similar level as industrial spaces. Of course, there are areas with problems, due to infrastructure or location, but inner Bucharest areas do not meet this description,” Hay argues.

Future projects

“We do not play the wait-and-see game with our projects, because for this year we are already ahead with several buildings,” says the CEO. Priorities for 2012 include starting construction of the two shopping malls planned for Ploiesti and Bucuresti Noi in the capital. AFI Ploiesti, which will deliver 25,000 sqm, is already 70 percent preleased according to Hay, with a Cora hypermarket as anchor. The opening of the mall is scheduled for the end of 2013.
Meanwhile, the 40,000-sqm shopping center in Bucurestii Noi will be anchored by a Real supermarket, with building of the first stage scheduled for May and the opening of that stage for Q1 of 2013. The project, called AFI Palace B. Noi, involves an investment of around EUR 60 million and will comprise the mall and four independent buildings that will form a retail park.
In Arad, AFI Europe is in discussions with a DIY firm over a 30,000-sqm retail park, work on which is planned to start this year or in 2012.

Who is David Hay?

David Hay is the company’s regional director for CEE. Before joining AFI Europe in early 2006, he served as vice-president of Hail Holdings. Hay has over 20 years of experience in international real estate development and marketing. He graduated from Buckingham University with an LLM.