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The Warsaw Voice » Real Estate » June 25, 2008
The Real Estate Voice
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Shopping Centers in Poland
June 25, 2008   
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In the next several years, Poland is expected to witness a trend whereby many new shopping centers will be built nationwide, mainly in medium-sized and small cities with populations ranging from 50,000 to 400,000. At the same time, new types of retail outlets are gaining popularity. These include convenience stores in large cities, factory outlets, retail parks, and small shopping and service centers along major streets referred to as strip malls.

Real estate consultants agree that the growing interest among developers, retailers and investors in medium-sized and small cities with populations above 50,000 will be one of the most significant trends on the Polish market for shopping space in the near future. Additionally, the supply of high-street shopping space in city centers-for example on Warsaw's Nowy ¦wiat, Chmielna and Krakowskie Przedmie¶cie streets, and on Cracow's Floriańska Street-is on the rise. New types of retail outlets will be developed, while existing post-industrial buildings and old tenement houses will be modernized and converted into shopping space, real estate consultants say.

Last year developers built almost 800,000 square meters of modern retail space in Poland, 40 percent more than in 2006. Developers were especially active in the shopping center segment, which accounted for 80 percent of the total increase in space. At the end of last year, Poland had more than 7.5 million sq m of modern shopping space, or 197 sq m per 1,000 residents; 66.6 percent of this space was located in the country's eight largest cities. In all, Poland currently has around 250 shopping centers, with a further 1 million sq m of shopping space under construction, and another 1.5 million sq m planned for completion in the next three years. Real estate services company CB Richard Ellis projects that 2.5 million sq m of new shopping space in centers located in both large and smaller cities will be built by the end of 2010. With 758 sq m of retail space per 1,000 residents, Warsaw is ahead of other Polish cities. It is followed by Wrocław in the southwest, with 718 sq m; the coastal Tricity of Gdańsk, Sopot and Gdynia, with 614 sq m; and Poznań in the west, with 597 sq m. In two years, Wrocław and Poznań expect to have more than 1,100 sq m per 1,000 residents and may move ahead of Warsaw. Notably, 38 percent of all modern retail space was built in medium-sized cities last year.

Market cools down
According to international real estate services company Cushman & Wakefield, the retail property market slowed down last year, compared with the high level of investor activity in 2006. Last year, the market saw 30 or so new deals for some 740,000 sq m of retail space worth a total of 1.6 billion euros. This was 59 percent of the total value of the 2006 deals and 82 percent of the 2005 figure. Portfolio transactions accounted for more than 48 percent of the total value of investment.

The decreased value of real estate transactions was in part due to a small number of high-value portfolio deals completed last year. Another factor was the latest credit crunch in the United States, which resulted in a reduced availability of financial resources and higher financing costs. Investors adopted a more cautious approach and many are waiting to see how the market will develop this year. One of the largest portfolio deals was one in which Simon Ivanhoe sold five shopping centers to Macquarie Countrywide Trust for 232 million euros. The largest single transaction was a 146-million-euro deal in which the AEW fund of France bought the Wola Park shopping mall in Warsaw from Ivanhoe Cambridge. Prospects for the second half of this year are promising because demand at the beginning of the year was strong and many deals are being negotiated.

Admittedly, it is more difficult to obtain a loan now. With the increased financing costs, buyers who have to rely on external financing find it more difficult to turn a profit. In some cases, they are not even able to borrow money because of high bank margins and a deceased loan-to-value (LTV) ratio. Consequently, the main players on the market are buyers with a larger share of their own resources, according to real estate consultants at the Cushman & Wakefield company. But the basic indicators for the real estate market are good, with strong demand from tenants, rapid economic growth, and high rents, as a result of which a further increase in investor activity is expected this year. At present, the average capitalization rates for retail properties in the best locations stand at 5.6 percent.

Small cities most popular
The first quarter of this year saw a continuation of last year's trends as developers' interest shifted from large to small cities. Most of the newly planned projects are in cities with populations ranging from 50,000 to 400,000 because the market for retail space in larger cities is expected to become saturated within several years. It is also expected that the contribution of cities with populations of 50,000 to 400,000 to the total supply of shopping space in Poland will double in the next two years-from 6 percent in April this year to 12 percent in late 2009. This year and next, only 43 percent of the space will be built in Poland's eight largest cities. The remaining premises will be built in medium-sized and smaller towns. "Smaller cities have two strong advantages now-greater availability of attractive commercial land and weak competition from existing retail facilities," says Anna Federak, an analyst at the market research department of CB Richard Ellis. According to CB Richard Ellis, smaller cities in eastern Poland, such as Lublin, Rzeszów and Białystok, have attracted much interest recently. More than 10 developers from across Poland have showed an interest in these cities in the past 12 months as they noticed the opportunities offered by the low supply of retail space there. Wałbrzych in western Poland, a typical industrial town with many post-industrial sites available for development, is one of the most interesting emerging markets. Interest in new shopping centers in Wałbrzych is huge and rents in newly planned facilities are up to 28 euros per square meter, CB Richard Ellis says.

Projects in emerging cities
Among the retail outlets completed in recent months in cities with populations below 400,000 are Focus Park in Bydgoszcz, Galeria Agora in Bytom, Gemini Park in Bielsko-Biała, Pogoria in D±browa Górnicza, Karolinka and Solaris Center in Opole, Galeria Wisła, Galeria Płock and Galeria Mosty in Płock, Focus Park in Zielona Góra, Forum Koszalin and Galeria Kosmos in Koszalin, Galeria Słupsk and Jantar in Słupsk, Galeria Focus in Jelenia Góra, and Zgorzelec Plaza in Zgorzelec, a town of 33,000. New premises are opening almost every month now. In May, the 40-million-euro Ferio center opened in Konin, a city of 120,000. The investor was RE Project Development, a subsidiary of Raiffeisen Evolution Project Development of Austria. The Ferio center comprises two buildings with a total space of 23,000 sq m, to be ultimately extended to 30,000 sq m. The buildings house a Castorama do-it-yourself supermarket of 9,000 sq m and a shopping-and-service center of more than 14,000 sq m with more than 60 stores including a Bomi delicatessen and H&M and C&A clothing stores. The Ferio center also includes office space and is the Austrian shopping chain's fourth facility in Poland, after Ferio Gaj in Wrocław, Ferio Galeria Zielona in Puławy, and Ferio Legnica. The chain plans to open more centers in Koszalin and Szczecin in the near future.

New openings in large cities
Galeria Pestka, a shopping mall of 40,000 sq m, opened in Poznań in the first quarter of this year. Built by German developer Moebel Walther, the facility was sold when it was still under construction to the PBW II Polska fund. The main tenants are Carrefour, Saturn, C&A, Sprider, Dziecko, and Kolporter.

Additionally, the most active developers, such as Mayland Real Estate, Caelum Development, Echo Investment, and Rank Progress, have announced plans to build several new outlets. Wrocław continues to attract a lot of interest among both tenants and investors. Apart from the newly planned projects, such as Idylla and Sky Tower, and the renovation of the Renoma and Marino shopping malls, there are plans to expand two existing facilities, Pasaż Grunwaldzki and Magnolia Park. In all, by the end of 2010, the city's total retail space will increase by 294,000 sq m. Poznań will be another city with a rapid increase in retail space, with 303,200 sq m to be completed by the end of 2010.

Family centers and factory outlets
Various types of retail outlets are available in Warsaw. These include retail parks (Janki, Targówek, and Zielony Retail Parks), factory outlets (Centrum Factory Ursus and Fashion House Piaseczno), and the Centrum Skorosze convenience center, a new type of retail outlet in Poland that opened in Warsaw's Ursus district in late 2007. Apart from Centrum Skorosze-and the Złote Tarasy shopping mall, which was the most spectacular retail project in the Polish capital last year-Warsaw saw the completion of the last phase of the Fashion House Piaseczno project that delivered 5,000 sq m of retail space. As a result, total space in factory outlets in the vicinity of Warsaw increased to around 30,000 sq m. Planned facilities include Neinver projects in Cracow and Warsaw, and the expansion of existing facilities in the largest cities. At the end of last year, there were six factory outlets in Poland with a total space of 70,000 sq m. Another 6,000 sq m was under construction, and 77,000 sq m was at an advanced planning phase. Rents in such premises range from 18 to 23 euros per square meter per month, with maximum rates at 27 euros.

Based on real estate market reports, including Retail Space Market in Poland, 1st Quarter 2008, published by Colliers International Poland; Commercial Property Markets Overview, Poland, Spring 2008, by DTZ; The Warsaw Property Market, March 2008, by Jones Lang LaSalle; The Polish Real Estate Market 2008, by PriceWaterhouseCoopers; Marketbeat, Poland, Spring 2008, by Cushman&Wakefield; and Understanding Office Destinations-Poland 2008, by CB Richard Ellis.
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