According to the report titled “Approaches to Financial Problems of the Shopping Center Sector and Solutions and Suggestions for Solutions” prepared by the Shopping Centers and Investors Association (AYD) under the leadership of Ernst & Young and with the support of Esas Gayrimenkul, the value of shopping centers decreased by 47 percent, while investments decreased by 56 percent. . Speaking at the meeting where the results of the said report were shared, AYD President Prof. Dr. Hüseyin Altaş evaluated the financial effects of the legal regulations implemented in recent years on the sector. Altaş said, “The regulation of the operation of the shopping mall in 2016, the ban on renting in foreign currency in 2018, the regulation on the increase rate in the debts law in 2019, the entry into force of the deferred liabilities in the debts law in 2020, and finally the common area regulation. Especially with the regulation made in 2018, the ratio of financial expenses of shopping malls to rents increased by 3.41 times. In other words, the rental income of the indebted shopping malls became unable to pay their debts. With the amendment made in the debts law in 2019, the CPI 12-month average requirement was introduced in rents. With this average, rent increases were 114 percent. However, if the normal inflation rate had increased, this rate would have been 167 percent on an annual basis, and would have been 282 percent if it had continued with foreign exchange. When valuation is made with increases, the value of shopping malls decreased by 47 percent in Euro terms. As shopping malls, our first priority is to earn rental income in order to survive. However, the regulations that have been implemented have led to a continuous decrease in our income.”
47 percent of common expenses cannot be collected
Talking about common area revenues, Altaş said, “As a result of the regulations, collections have decreased continuously. While the ratio of common area expenses to be covered by revenues was 71 percent in 2017, this ratio decreased to 53 percent in 2021. In other words, we can collect only 53 percent of the expenses from retailers. We do not know what this rate will be with the latest regulation. As a result, both our rental income and our common area income have decreased significantly. Regarding what needs to be done for the sector to breathe, Altaş used the following statements: “Commercial real estate rental regime should be brought to Turkey as soon as possible, as in many countries. The data in countries such as the Netherlands, Germany and Switzerland also show that the rental regime of commercial real estate is different, the housing is different. The social law state regulates contracts with the motive of protecting the weak against the strong. Many retailers are in a strong position against the mall. Perhaps it is the shopping mall investor that needs to be protected. We believe that in case of regulation, international and local investors will invest in the sector again. Because although shopping mall saturation is reached at certain points, there are still no shopping malls in 13 provinces. Maybe it can be regulated under what conditions, where and how often shopping malls will be built.” According to the information given at the meeting, shopping malls currently have a debt of 13 billion dollars, 12 percent of which is TL. Altaş said, “23 percent of the current debts are due this year, 51 percent is 2023 and the rest is 2024 and beyond. The years with the highest payment risk are 2022, 2023 and 2024. Shopping malls are negotiating with banks to return loans, but there is no fair situation. All sectors have been touched. We demand that these be regulated by cooperating with the shopping mall sector.”
Shopping mall investments decreased by 56 percent
AYD Vice President Cem Eriç said that as of the end of 2021, the number of shopping malls has increased to 442 and the leasable area has increased to 14 million square meters. Stating that this figure is expected to increase to 15 million square meters by 2023, Eriç said, “The shopping mall investments, which increased rapidly between 2007 and 2017, decreased at a remarkable rate after 2018. The new supply decreased by 56 percent every year, from 890 thousand square meters to 390 thousand square meters, and 28 units fell to 9. Currently, there are no shopping malls in 13 provinces,” he said.
Behind 2019 with 1.4 billion visitors
Stating that the shopping malls are still not able to overcome the negative impact of the epidemic, Eriç shared the following information on this subject: “In 2019, the year when the numbers peaked, shopping malls hosted 2.2 billion visitors throughout the year. This figure amounted to 1.4 billion units in 2021. As of July this year, the number of visitors is still 12 percent behind 2019,” he said.
Rental income decreased by 53 percent in Euro terms
Pointing out that the rental income has decreased significantly in Euro terms in the past period, Cem Eriç said, “Compared to the 2017-2021 comparison, the rental income per square meter decreased by 53 percent. This is one of the biggest problems of shopping malls that have financed their projects in foreign currency. While debt is growing in foreign currency, incomes are falling in TL. “Shopping malls are having trouble paying even the interest on their debts,” he said. Cem Eriç also gave information about the created ecosystem and continued as follows: “Shopping malls create an important ecosystem together with the stores in them, and this ecosystem feeds many different sectors. The revenue created in 2021 increased to 388 billion TL. In terms of GDP, a contribution of 257 billion TL was made. This is equal to 4% of Turkey’s GDP. On the other hand, it provides 7.4 percent of the total employment with its 2.1 million employees. With the tax of 69 billion TL created in 2021, it received a 5 percent share in total tax revenues. In terms of exports, which is an important value for Turkey, they play an important role with sales to foreigners. Shopping malls also undertake important functions in many areas such as the branding of the local retailer, expanding abroad and online trade.
Currency mismatch should be fixed
Ernst & Young Turkey Company Partner İlhami Koç, who conveyed the solution proposals for the shopping mall sector at the meeting, said, “We recommend that the leasing transactions between the merchants be arranged separately from the residential leasing. It would be appropriate to evaluate the sharing of all expenses, including management and marketing expenses, according to the agreement between the shopping mall management and the tenants. As a short-term solution; Making rent increases at the annual/period CPI rate ensures that the changes in inflation rates are reflected fairly. Restructuring the maturity structure by considering the income/debt payment balance and maintaining a sustainable level of indebtedness instead of completely liquidating the loans can also be considered. It should also be considered to reconstruct the debt/income balance by eliminating the exchange rate mismatch between loan debts and revenues, and to convert the loan debts partially or completely into TL.