Mall developers battling at close quarters

Just more than a year ago Galeria Mokotów and Sadyba Best Mall launched into fierce competition for Warsaw's retail market in the Mokotów district. Now Central European Retail Property Fund's (CERPF) Wola Park and Cefic's Arkadia are getting ready to duke it out in the Wola and Bemowo districts in northwest Warsaw. But property experts are skeptical about the proximity of the two projects, which are only about eight kilometers away from each other, and the market's ability to sustain them in an already dense sector. "The competition will be fierce there, because they are both large schemes and are too close to each other," said Michał Kubicki, vice president of PIA Piasecki Inwestycje, a Kielce-based investment subsidiary of PIA Piasecki, a general contractor listed on the Warsaw Stock Exchange (WSE). The first to open will be Wola Park, located on ulica Górczewska. The $100 million project is slated for completion in September, according to CERPF, a private fund managed by several property-related companies. "We are not worried about the tenants and future clients," said Sean Briggs, CERPF's head of leasing and marketing. "Both projects (Wola Park and Arkadia) are sophisticated third-generation shopping centers and will complement each other." The success of a mall depends mainly on the tenant mix and its location, he added. About 50% of the tenants will rent space in both schemes, according to Grzegorz Pźkalski, director of leasing department at Cefic, a France-based development firm. Halfway there As a third-generation mall, Wola Park and Arkadia, which also has a $100 million price tag, will incorporate a hypermarket, retail space and entertainment facilities. Six months prior to the opening, Wola Park is 55% leased, with the latest deals sealed with Galeria Centrum, Empik and Smyk stores, which took 1,108 square meters, 851 square meters and 587 square meters respectively. Other anchor tenants include RE Reserved, KappAhl, C&A, Giacomelli, and Euro RTV/AGD. "It's a pretty good result and we hope to have it (100%) leased by September," Briggs said. Pźkalski said the 55% figure is small but he thinks most of the space is under negotiations. "Six months before the completion they should have better occupancy but definitely they are in advanced talks with other tenants," he said. Briggs confirmed that leasing agreements for most of the smaller units would come at the end of the construction process. "When people see the actual building, they start to panic and rush to lease the space, such that you have one unit and five tenants chasing for it," he said. Arkadia is 12% leased but there are still more than 20 months before the project is complete. "We must be 30% full by March, that's a condition set by the bank," Pźkalski said. So far, the project attracted France's Carrefour, Cinema City, an Israeli movie operator, Germany-based Media Markt electronics store and Poland's clothing chain RE Reserved. There will be about 190 retail outlets. The scheme totals 102,723 square meters. Wola has yet to choose an operator for its six-screen movie theater. "The cinema market is pretty bad at the moment," Briggs said. "There is no point in rushing into a wrong operator or at a discounted amount just because of the market conditions." He added that the fund can afford to wait. A bowling alley and a health and fitness club will provide additional leisure options, according to mall plans. Arkadia will incorporate third-generation mall features including an entertainment section, food court, sports facilities and a multiplex cinema with 15 screens. Even with the grand plans for Arkadia, CERPF is likely to win the first stage of the race - simply because it will be the first on the market. Cefic's Arkadia will open later. "They have the edge over us because they're faster," Pźkalski said. "We were waiting for a permit from the Interior Ministry and we are planning to break ground this April, so we should have it completed at the beginning of 2004." But experts say that in the long run the French development may dominate this area. "It has a better location, better access for people and it's bigger," Kubicki said. Rental rates hold steady Despite well-known economic problems across Poland, retailers had a solid year in 2001, according to property specialists. As a results, rents are unlikely to dip this year. "As for rental levels, actual headline rents remain constant," Briggs said. "I'm surprised. I would imagine they would come down." But tenants will pay to locate their products, he added. "People will pay the rent because they know they can do the turnover," he added. In Wola Park tenants pay E35-E60 per square meter a month, depending on the location in the mall, space rented and type of business. Arkadia's tenants will pay E40-E65. Paving the way Wola Park covers a 22-hectare plot, including two hectares of green space. CERPF is also upgrading and restoring the historical Urlych Park and a manor house on the site. "We want to do something to contribute to the local community, something that makes our project slightly unique from other projects like a green area, walking through a park and garden," Briggs said. "We're also incorporating a historical building into our scheme and landscape, which adds a little bit of history to a modern project." To upgrade ulica Górczewska and improve access to the retail center, the investor spent zł. 12 million ($2.9 milion) on road infrastructure improvements. Wola Park will total 72,700 square meters, including 30,000 square meters on two levels for Auchan, a France-based hypermarket chain. The shopping center will house 178 units. Competition in place In addition to the new two giants, the retail market in this part of Warsaw is already dense. France's Carrefour Bemowo, the U.K.'s Tesco and HIT of Germany, which is expanding from a hypermarket into a shopping mall, are already present in the neighborhoods. Last October the zł. 200 million ($48.8 million) Fort Wola opened, bringing another 72,000 square meters of retail space. "It will be quite interesting to see," Kubicki said. "Every project will have to fight for clients." Because of the competition in this area the rents should fall by 20% in the near future, he added.