Developers bullish on Varsovian appetite for malls
By : Matthew Day
Coming up roses: A shop girl sells perfume at Warsaw's Promenada Mall.
Shopping mall developers are forging ahead with plans for more retail projects in Warsaw, despite concerns that the economy is slowing and the sector may already be saturated.
Warsaw's two biggest malls, Galeria Mokotow and Sadyba Best Mall, which opened last September, are to be joined by the 72,000 square-meter Wola Mall in the Wola district in 2002. Already the mall has rented 40% of its retail space. By 2004, French developer Cefic plans to open its Arkadia mall near Rondo Babka. Also that year, the $220 million Zlota Tarasy center, to be located between Warszawa Centralna railway station and Holiday Inn, is scheduled to open its doors.
Developers said these projects are proof that the capital's capacity for indoor shopping and entertainment is far from oversupplied. According to Marek Buzak of Deutsche Hyp, a German financier of commercial property, Poland has only 0.6 square meters of retail space per person compared to two square meters in Western Europe.
Capital Investment
However, while they agree on the market's potential, developers differ over the number of new projects the capital can support. According to David Leveritt of the Central European Property Fund (CEPF), which is developing the Wola Mall project, "stage-one" malls those anchored by a hypermarket have topped out as fewer suburban complexes are being built. Meanwhile, "Stage-two" malls, such as Galeria Mokotow and Sadyba, are set to see further growth as the market for in-town shopping combined with multi-leisure facilities is still undersupplied, he said.
Ian Elliot, the retail manager of Anglo-American real estate firm Jones Lang LaSalle, said Warsaw could absorb about "five to six stage-two malls." In addition, the large residential and catchment areas of Zoliborz, Goclaw and Praga could all sustain malls, said Maciej Nowotny, the managing agent of Poland Relocation Services.
In particular, downtown is destined to see further development of mall projects. "At the moment, it's a retail desert," said Monika Debska, managing director of U.K.-based Knight Frank Nieruchomosci .
Even so, Warsaw's market will become saturated eventually. Deutsche's Buzak said the capital's appetite for malls will be satisfied between 2002 and 2004.
Pulling power of malls
Meanwhile, not even the threat of an economic slowdown is dampening developers' enthusiasm for building shopping malls. Some developers are even saying malls are built to withstand the cyclical nature of the economy. "You have to look at the development over a long-term scenario," Debska said. "All decisions are made with a long-term view."
According to the CEPF's Leveritt, an economic slowdown could even work to a mall's advantage. He said that given the choice of "spending your life trudging around Warsaw or going to a shopping mall that is compact and offers organization and choice," you will choose the latter even if you have to pay slightly more. "Retailers will gravitate toward the market place (malls)," he said, "because that's where the consumers will be."
However, this doesn't mean malls will always be the cash cows they are for developers today. According to Knight Frank's Debska, Warsaw mall rents have already softened during the past six months and now average $15-$40 per square meter and could fall to an average of $20 per square meter. Debska attributes the drop to the trend set by the office and warehousing markets, where rents fell 12% last year alone. "There is also more choice and competition," she said, "so prices come down."
At the same time, a softening economy could result in the reduced spending power of Poles, forcing malls to fight for customers. Tenants, too, could find themselves struggling to survive. In such a scenario, upmarket stores selling high-priced luxury goods would be particularly vulnerable, Elliot said. But even if they closed their doors, malls would still have plenty of tenants, he said. Galeria Mokotow has a waiting list of 40 retailers.
Still, mall operators will have to become savvier to attract customers, said Joran Reshef, the managing director of GTC Galeria, which operates Galeria Mokotow. Galeria's promotions such as its Valentine's Day party and slashed cinema prices for January will soon become the norm for luring mall browsers, he said.
Despite the hype, however, malls have their skeptics. Jan Tarasiuk, the operations manager of Tchibo Coffee Bars, a German retailer with three shops in malls, said a prime location on the street is just as good or better than in a mall as the number of potential customers is higher. He also said that not all mall projects are a recipe for success, citing an example in Lodz where a mall built several years ago quickly closed as local residents could not afford to shop there.
