Time for tailor-made solutions

The retail property market in Poland is going through a new phase in its development By Adam Zdrodowski As the retail property market in Poland matures and becomes more and more competitive, developers are now increasingly cautious with regard to the size and format of the new projects that they are planning to launch in the country. While there is still room for even very large shopping centers in selected locations, the development of a new regular mall has, in many places, become difficult, with developers now diversifying their offer to better address the needs of the local market. The retail property market in Poland is currently becoming more and more saturated, with developers, owners and managers increasingly facing challenges, said Agata Czarnecka, associate director, Consultancy and Research, at CBRE. “The development of typical, large-scale shopping centers is less and less possible due to the fierce competition and the lack of available sites,” Czarnecka said. She noted that the situation has led to the emergence of new retail concepts in the market. Fewer megamalls coming? While shopping centers continue to account for the largest share of the existing and planned volume of retail space in Poland, the growing maturity of the retail property market in the country means there is less and less room for spectacularly large malls. According to CBRE data, approximately 25 new retail projects were completed in Poland last year, of which 16 had GLA of less than 20,000 sqm. The largest scheme delivered in the country in the period – Zielone Arkady in Bydgoszcz – comprises 47,000 sqm of retail space. [caption id="attachment_98678" align="alignleft" width="300"] Image: Ghelamco[/caption] The majority of new, large-scale shopping center developments currently under construction are investments with around 60,000-65,000 sqm of GLA, although several larger projects are also scheduled to be completed within the next few years. The forthcoming Posnania project in Poznań, for one, will deliver 99,000 sqm of retail space. The largest planned retail schemes include Jupiter in Warsaw and Kolorowe Życie in Góraszka near the Polish capital – both of which will comprise around 100,000 sqm of GLA. “It seems that because of growing market saturation, new investments offering over 100,000 sqm of GLA will be rare,” said Katarzyna Michnikowska, senior analyst, Research and Consultancy, at Colliers International. Admittedly, one can expect several of the existing, popular malls to ultimately comprise around 100,000 sqm of leasable space upon extensions, Michnikowska said. The Auchan Kołbaskowo facility in Szczecin, for one, is about to grow to 92,000 sqm in the near future. In the opinion of Edyta Potera, the national director, Retail Agency, at JLL in Poland, judging by the current market saturation, the purchasing power of the residents and the market trends, there is still room for large-scale shopping centers in Warsaw, the Tri-City and Kraków. The markets respectively feature 448 sqm, 492 sqm and 494 sqm of retail space per 1,000 residents. By comparison, Wrocław and Poznań currently have 646 sqm and 607 sqm of retail area per 1,000 residents respectively, Potera noted. Third-phase projects According to Fabrice Paumelle, head of Retail, Poland and CEE, at BNP Paribas Real Estate, the market is now entering the third, “differentiation” phase of its development, having gone through the “equipment” and the “consolidation” phases in the 1990s and the 2000s. The first phase saw the development of the hypermarket-anchored schemes located on the outskirts of city centers. For its part, the second phase witnessed the development of fashion-anchored megamalls including Arkadia in Warsaw and Manufaktura in Łódź. Those second-phase shopping centers delivered up to 100,000 sqm of leasable space and were built in the urbanized areas of large cities. “This second wave confirmed the potential for huge shopping centers with over 60,000 sqm in all the top 15 cities in Poland,” Paumelle said. By contrast, the third phase of the development of the retail property market in Poland will be defined by the delivery of a whole range of new retail schemes, as well as the remodeling and extension of some of the existing facilities. Indeed, according to the Polish Council of Shopping Centres (PRCH) data, of the total of more than 605,000 sqm of modern retail space delivered in Poland last year, almost 162,000 sqm was in extension projects, said Radosław Knap, general director at the organization. Most of such schemes were located in the largest agglomerations, whereas most new developments completed in 2015 were located in cities with populations of less than 100,000. At the beginning of the year, construction on six extension projects was underway, Knap said. The delivery of new space in shopping centers will now involve more remodeling and extension than pure creation because the cities are equipped and are looking for differentiated destinations, Paumelle said. There is demand for the differentiation of the retail offer and retail formats, rather than the provision of “everything under the same roof.” Third-phase projects will thus be tailor-made retail schemes, suited to the requirements of the local market, Paumelle added. Smaller formats growing Anna Hofman, a senior negotiator at the Retail department of Cushman & Wakefield, was of a similar [caption id="attachment_98677" align="alignright" width="300"] Image: Dekada[/caption] opinion. She argued that one can currently clearly see the trend of repositioning and the specialization of retail projects. Many of the ongoing schemes involve the modernization and repositioning of the existing shopping centers of the first and the second generation so that they can meet modern standards and can still be attractive in the increasingly competitive market, Hofman added. Meanwhile, the continued development of the smaller retail formats segment has reflected the changes in the retail property market in Poland. A large number of convenience shopping centers and small retail parks have been delivered in Poland in recent years. In the smaller cities across Poland, the average size of new retail projects has diminished of late, said Hofman. Most of the schemes are small shopping centers and retail parks offering between 6,000 sqm to 12,000 sqm of space, she added. “The prospects for the development of convenience shopping centers in Poland are promising – there is demand from buyers and tenants willing to open stores in facilities of this kind,” argued Jeroen van der Toolen, managing director CEE at Ghelamco. He added that unlike large-scale shopping malls, convenience shopping centers are easily accessible, create valuable public space and support the growth of local entrepreneurship. Last year, Ghelamco opened the Plac Vogla convenience shopping center project in Warsaw. Aleksander Walczak, president of the management board at Dekada, believes that smaller retail formats, including convenience shopping centers, have proved successful in smaller cities, which have been attracting a lot of developer attention in recent years. He pointed out that modern shopping centers already operate, or are currently under construction, in almost all cities in Poland that have a population of between 50,000 and 100,000. Forecasts say that the market there is almost saturated, Walczak said. This is because many of the smaller cities can only accommodate one shopping mall project. Asked about new trends in the small retail formats sector, Walczak mentioned the integration of convenience shopping center schemes with bus and railway stations. Dekada, which is one of the most active developers in this sector, already has three developments of this kind in its portfolio – in Myślenice, Nowy Targ and Brodnica. Three other investments – in Ciechanów, Konin and Mińsk Mazowiecki – are in the pipeline. Dozens of new convenience shopping centers have popped up in Poland in recent years. The development of small retail parks, sized from approximately 2,000 sqm to around 10,000 sqm, is another relatively new trend in the market. According to Michnikowska, cities with populations of between 30,000 and 100,000 now have a total of around 250,000 sqm of space in such projects. “We have also been witnessing the growth of retail on the ground floors of office and residential buildings,” Potera said. No magic formula All of this does not mean that smaller retail formats are now going to play a dominant role in the market – with the market currently in the differentiation phase, convenience shopping centers and retail parks are only two of the many answers that developers can come up with. According to Paumelle, “the time of the magic formula with a trendy concept to duplicate is gone.” As the retail property market in Poland is getting more and more mature and increasingly professional, only tailor-made retail products can prove to be successful. “A new megamall could still be the answer here, a convenience center to fill a gap there, the extension of a basic 1990s hypermarket into a regional mall again here, and the development of a new high-street complex again there,” Paumelle said. In his opinion, we are now entering exciting times, when investors have started looking at various retail concepts, retailers have started seeking new destinations, and public authorities have finally started thinking about the role that retail and entertainment should play in the downtowns of cities.