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The Warsaw Voice » Real Estate » May 14, 2008
The Real Estate Voice
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Retail Space Market
May 14, 2008 By Michal Jeziorski   
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A growing number of projects in smaller cities, stable high demand for retail space and a dwindling amount of vacant space were the main trends on the commercial real estate market in Poland in 2007. Further intense development of the investment market is expected, with the commercial sector attracting particular interest.

The Polish economy grew by 6.5 percent last year, fueled by growing employment and consumption as well as intense activity in the residential, commercial and infrastructure sectors. In terms of Gross Domestic Product, Poland is the eighth-largest economy in the European Union. The unemployment rate dropped from 13.8 percent in 2006 to 9.6 percent at the end of 2007. In the biggest cities-Warsaw, Cracow, ŁódĽ, Wrocław and Poznań-the rate is much lower, and many companies have difficulty finding staff. Growing employment pushed wages up by an average of 9 percent in 2007.

Last year sales on the commercial space market in Poland reached 3.07 billion euros, about 40 percent below the record year of 2006. According to a Knight Frank Research report, investor activity decreased following the loan crisis in the United States. At the same time, banks were less willing to finance transactions, and raised their margins and the amount of own funds required from loan takers.

As in recent years, most investment involved commercial facilities, whose share in total sales volume was 53 percent. Demand for modern retail space remains on a stable high level and focuses on shopping malls in city centers. Tenants are increasingly interested in retail space in medium-sized cities with more than 80,000 residents. Vacancy rates range between 0.1-3 percent. The country's major shopping chains keep creating new store concepts, and new international shopping chains are expected to enter the market. In addition, the Polish market has attracted the attention of luxury shopping chains that are seeking ways of entering the market directly, through licenses or franchising.

Development of the main shopping streets in Polish cities is restricted by the limited number of plots available in central locations, the ownership status of the existing premises (mostly municipal property) and the unclear legal status of many properties. The dominant investor activity on the main shopping streets involves modernization of existing tenement houses in order to adapt them for trade, catering or entertainment functions. However, dynamic changes in this segment are expected in the near future, influenced both by new investment projects and the plans of major international retail chains offering luxury products for the growing group of wealthy consumers.

Trade centers
Last year, retail space attracted the most interest on the investment market, providing 54 percent of the total value of transactions. A significant share of these facilities was located in the larger cities. The total supply of modern retail space in Poland last year exceeded 6 million square meters. Projects completed in Warsaw and the six main cities (Katowice, Gdańsk-Sopot-Gdynia Tricity, Cracow, Poznań, Wrocław, ŁódĽ) supplied 368,000 sq m of retail space for rent. Of these, Wrocław has developed the most dynamically, with three new shopping centers opened: Pasaż Grunwaldzki, Arkady Wrocławskie and Magnolia Park. New space in Wroclaw, totaling 155,000 sq m, constituted 58 percent of retail space completed in 2007 in the largest cities. Supply also grew significantly in the Tricity area, with a total of 65,000 sq m of new retail space in two new projects: Galeria Bałtycka and Port Rumia Centrum Handlowe Auchan.

Due to substantial saturation of the regional retail space markets, developers also have embraced medium-sized cities (100,000-250,000 residents) where the amount of modern retail space is substantially less than in the metropolitan areas. Construction of shopping centers is under way, for example, in Białystok (Gemini Park, Alfa Centrum), Bielsko-Biała (Gemini Park), Bydgoszcz (Focus Park), Lublin (Felicity), and Rzeszów (Millenium Hall, Galeria Nowy ¦wiat). Among the largest projects under construction are Galeria Malta and Pestka in Poznań, Galeria Legnicka in Wrocław and Galeria Wisła in Płock.

By the end of this year, developers plan to complete 1 million sq m of retail space. Their activities will still be most visible in major Polish cities, but projects in medium-sized cities are also planned, for example, in Rzeszów, Częstochowa, Radom, Opole and Słupsk.

Poland continues to attract a large number of new projects in the retail property segment. Some 317,000 sq m of retail space is under construction in Warsaw and the main cities, 80 percent of which is scheduled for completion this year. More than 900,000 sq m more is planned for completion by the end of 2010, led by projects in Cracow (247,000 sq m), Warsaw (214,000 sq m), Upper Silesia (212,000 sq m), and Wrocław (121,000 sq m).

Last year, there were 8,374 stores in shopping centers in the eight largest cities, with the most stores in the clothing category (2,736), and the least in children's items (226) and sports (113). Retail chains are developing by entering the market in medium-sized cities and forming new retail concepts (for example, Almi Decor-FLO, Monnari-Tamaris). New retailers, such as the French underwear chain Etam, are also expected to appear on the market.

Retail space in Warsaw
With more than 1.3 million sq m of all types of modern retail space, Warsaw is considered one of Poland's most mature markets. However, the amount of retail space per resident is not the highest in the country; with 784 sq m per 1,000 residents, Warsaw is behind Poznań (812 sq m). Warsaw residents have relatively high purchasing power in relation to the amount of retail space in the city, with disposable income of zl.1,446 per square meter of retail space.

Rents in Warsaw have grown significantly during the last two years, reaching an average of 100 euros per sq m for stores with some 100 sq m in the best shopping centers and around 14 euros for supermarkets in these facilities. In the near future, rent will rise in close relation to the economy, disposable income and, to a growing extent, the sales in retail trade.

Knight Frank Research reports that last year 93,000 sq m of modern retail space were completed in Warsaw. Major projects included Złote Tarasy in the heart of Warsaw, one of the leading shopping centers in Central and Eastern Europe. The center has 63,500 sq m of retail space with a Carrefour supermarket, Multikino multiplex, Saturn consumer electronics store and 220 other stores and service points. Other completed projects include Centrum Familijne Skorosze with Alma supermarket and Zielony Park Handlowy.

The commercial property consultancy King Sturge reports that Arkadia and Centrum Wileńska were the most popular shopping centers in Warsaw last year, with 21 million and 20 million visitors respectively. However, in the latter case, the actual figure might be lower, given the traffic generated by passengers using the neighboring railway station. Meanwhile, King Cross Praga and Galeria Mokotów enjoyed the highest number of visitors per square meter of leasable space.

The size of the Warsaw market attracts new investment projects. A new Auchan supermarket will be built in the suburb of Łomianki, while the Promenada and Centrum Skorosze shopping centers will be expanded. Large residential estates will be sites for the Rynek Powsiński planned by Anacona company, and Galeria Rembielińska by Nap Invest.

The growing demand for space is driven by the expansion of operators already present on the market as well as the appearance of new ones. Recent newcomers include Bershka, Next, Naf Naf, van Graaf, Body Shop, Capella Play and Hard Rock Café. In most cases, Warsaw was chosen as the location for their first facility.

Outlet popularity
The outlet centers in Poland are developing fast. Last year, Spanish developer Neinver opened a new facility in Luboń, and plans another one in Cracow. Outlet Company launched a center in Poznań, and plans to open one in Wrocław. Premiumred Real Estate Development is preparing three projects, in Warsaw, Wrocław and Poznań.

Large-area non-food stores are developing swiftly as well, both freestanding facilities and theme shopping parks. Cushman & Wakefield reports that the construction material segment is the most active, driven by the swift development of the residential property market. Castorama remains the market leader, with two own brands, Castorama and Bricodepot. IKEA leads the market of modern theme shopping parks. In the near future, it plans to expand existing facilities (Park Handlowy Matarnia in Gdańsk, Park Handlowy Franowo in Poznań) and build new ones (ŁódĽ).

Shopping parks are also developed in the process of expanding other shopping facilities that have a surplus of attractive land. For example, Auchan plans to expand three to five of its existing facilities into shopping parks with large-area non-food stores over 2007-2009. The Targówek shopping center's expansion was completed in the first half of 2007, with the addition of the 24,000-sq-m Zielony Park Handlowy.

Last year, Poland had more than 1.3 million sq m of large-area non-food stores, and 300,000 sq m more are planned.

Advanced architecture
Shopping centers are built in excellent locations and feature interesting architecture. They attract visitors with a rich range of products as well as entertainment-restaurants, clubs, movie theaters, art galleries and offices. The most advanced stage-the so-called fourth-generation center-involves facilities that are designed to resemble a small town center, with alleys, squares and yards. They are intended to become the focus of local community life, where people may spend their free time. In such projects, landscape architects are hired at an early design stage and as a result, shopping centers often feature interesting design with ample green spaces. Plants are no longer just a decorative item. They also perform other functions: they may separate areas intended for rest, mark the main traffic lanes, or mask architectural details. Plants create original spaces, blend harmoniously with the surroundings, improve air quality, and are good mood-boosters. Clients are more willing to visit centers that feature such a comprehensive approach to design.

In short, the high investor interest in plots suitable for shopping centers and the number of projects already on the drawing boards suggest that the retail space market will keep growing in the near future. So far, the sector has developed most dynamically in Warsaw, Wrocław and Poznań. However, large cities are slowly approaching the saturation point for shopping centers. Recent analyses indicate that in the next few years, most projects will be located in medium-sized cities such as Bielsko-Biała, Rzeszów and Słupsk.

The swift construction of new shopping centers is driven by increasing demand. Higher wages, falling unemployment and good economic growth prospects encourage Poles to invest their money, which fuels the real estate market. This in turn leads to the development of construction material hypermarkets. And better living standards have a positive effect on consumer mood.
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