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The Warsaw Voice » Real Estate » April 2, 2008
The Real Estate Voice
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Investors Eye Smaller Cities
April 2, 2008   
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Real estate investment offers big opportunities and the potential for big profits, but it also carries big risks. The latter are a result of near-saturation of the market in the biggest cities, a lack of attractive sites and investment opportunities and huge competition. Many firms are looking at smaller, local markets and searching for clients of more modest means. Developer RE Project Development has adopted just such a strategy.

Poland still has one of the most rapidly developing construction sectors in Central and Eastern Europe. But it is not always simple to predict which real estate projects are the best investment. The last two years' rapid increases in apartment prices in Poland's largest cities are unlikely to be repeated.

Office buildings still offer a reasonable rate of return on investment since demand remains stable and not much office space is available in large cities. It is difficult to predict whether a downturn in the economy would result in less demand and poorer returns. Many large investors are now more willing to invest in smaller local markets.

Small towns show promise
Retail centers in smaller Polish towns and cities offers good investment opportunities. RE Project Development, which belongs to Raiffeisen Evolution Austria, is one firm that has followed this trend and is opening retail centers in towns of under 100,000 inhabitants. Market experts, however, say that it will take several years before it is known whether such projects are a success. RE Project Development completed its first retail centers in 2005. The firm carries out projects in carefully selected sectors of the real estate market. Maciej Krenek, an RE Project Development board member responsible for the Polish market, says, "Our projects are not chosen by accident. We follow a well planned strategy. We do not want to build yet more shopping centers in Warsaw. We also do not build apartments that do not meet specific standards. Our projects are directed at the middle classes, who will be the market's best clients in the future."

One example of this is the company's Bemowo Park residential development in Warsaw, which is aimed at people who are financially stable but not necessarily the most wealthy.

Local malls
Over the last few years RE Project Development has been opening Ferio, a chain of shopping malls, in smaller Polish towns rather than in large cities. There is a Ferio in Wrocław, Legnica and Puławy. A Ferio mall opens in Konin in April. "Our centers combine shopping, services and recreation facilities such as fitness clubs and ice rinks," says Krenek.

"What distinguishes Ferio from other centers is the wide choice of shopping and services on offer. The choice is not only wide but, apart from serving people's everyday needs, it includes products that are often purchased on the spur of the moment. Ferio centers are also not so huge that people need a map to get around." Some 5,000 people visit the Legnica Ferio every day. A similar number visit other Ferio stores.

Market experts say that building retail centers in towns or cities of some 100,000 or even fewer inhabitants is not at all risky. Many retail centers have appeared in Poland's largest cities with several hundred thousand inhabitants in recent years. Krenek says, "It seems that this market today is already saturated. What is important is that the standard of living in Poland has risen not only in Warsaw. The middle class is growing stronger in smaller towns and cities too. Moreover, when building a retail center in a smaller town, it must be remembered that customers will also come from the surrounding area."

Mariusz Rodak, RE Project Development's project manager, says, "There are no simple rules in the real estate market. A project will be successful as long as there is demand, be it for retail centers or apartments... The key to success is to come up with a concept that will be attractive to customers. One significant way to do this is to ensure that the center's tenants include brands that are well known on the Polish market."

Agnieszka Domańska
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