Shopping center extensions - the way to stay competitive in Poland's retail market

The past 15 years have been a period of remarkable transformation of the retail market in Poland. From having virtually no modern retail floor space, the country can now boast 450 modern retail projects in excess of 5,000 sqm and many international retail chains together with a booming home-grown group of retailers.

The main driver behind this first wave of growth has been the development of hypermarkets and accompanying galleries by international retail chains. These include Tesco, Auchan, Carrefour, Real, Geant and Ahold. The majority of these plans were simple, single-storey developments incorporating a hypermarket and a mall with only a couple of units. These schemes tended to be located in suburban or in "out of town" locations. A second generation of shopping centers was an answer for retailers' growing demands, and concerned larger shopping malls attached to international anchor tenants.

Maturing market

More recently, specialized retail developers such as ECE, GTC, ING and Parkridge have developed city-center shopping centers without international anchors, more akin to Western malls, with a higher provision of high-quality fashion, luxury items and leisure facilities.

Due to the continuing favorable economic situation in Poland, increasing spending power and retail sales, as well as increasing brand-awareness of customers, chains are expanding rapidly and new chain operations are coming onto the market. Furthermore, the demand for high-quality retail space in 2008 remained strong, both in the major Polish cities and secondary and tertiary cities.

The retail market in Poland is becoming more mature, both in terms of the geographical split of retail stock and in terms of developed types of retail space. The total modern retail supply exceeded eight million sqm in October 2008, 73 percent of which is situated in shopping centers. First generation shopping centers still constitute over 20 percent of the total stock. The increasing competitiveness of local retail markets and the delivery of new developments of even higher quality and wider retail and entertainment offers resulted in a loosening of the dominant position of existing schemes. Many outdated, first- or second-generation shopping centers have been recently extended and/or redeveloped in order to increase their attractiveness.

Expansion trend

The trend of extensions of operating schemes began in 2001, with the second phase of IKEA Janki in Warsaw. In 2005, over 100,000 sqm was built in extended schemes and 2006 and 2007 witnessed  similar volumes.

This year is likely to be a record-breaker and expansions will account for 160,000 sqm, which includes 20 enlarged schemes, including Galeria Kalisz, Auchan in Legnica, Galeria Piastów in Legnica, Manhattan in Leszno, and the M1 centers in Radom and Czeladź.

The next wave of redeveloping and enlarging of existing projects is forecast in 2009 and 2010, with a planned 260,000 and 110,000 sqm, respectively.

Warsaw is currently the most mature and competitive market, and therefore landlords have chosen to adapt to changing market conditions and update and enlarge their centers. Already, expanded schemes include TargówekRetailPark, Fashion House in Piaseczno, Galeria Mokotów and Auchan in Piaseczno. In the next two years, approximately 50,000 sqm will be built in enlarged centers annually.

Small-town schemes

However, not only are major cities witnessing extensions and redevelopments of existing schemes. Retail chains are also expanding into smaller towns and cities where new developments are at an early stage of planning. Landlords of existing schemes still have land reserves and are able to deliver retail accommodations relatively quickly.

In smaller cities, extension trends concern mostly shopping malls attached to hypermarkets. Malls in such schemes, constructed between 2000 and 2003, usually included up to 20 shopping units and were recently enlarged with additional units. This was observed in Auchan in Legnica and Tesco schemes in Bielsko-Biała, Szczawno-Zdrój and Zielona Góra. In some cases, expansions include the development of large-scale big-box units such as the Leroy Merlin stores constructed next to Auchan in Częstochowa and Żory.

Staying competitive is extremely important in view of the current economic situation, thus, retail chains are revising their expansion plans and choosing locations for their new outlets more carefully. Established positions in the local market and in customers' awareness may be a competitive edge for redeveloped projects. Retailers want to minimize their risks and are eager to open stores in proven locations.

Naturally, the greatest beneficiaries of extension developments, apart from customers and retailers, are landlords. New shop units and retailers in the center translate into a new profile and/or positioning of the center and wider retail offers. A scheme's redevelopment and new "face" often include changing the fit-out and facade, as well as the internal and external communications. Also, renegotiating leases, which accompanies the expansion, has a strong, positive impact on rental income.

Ewa Derlatka-Chilewicz is a senior market analyst at DTZ in Poland