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The Warsaw Voice » Real Estate » September 24, 2008
The Real Estate Voice
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Modern Retail Space
September 24, 2008   
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Modern shopping centers are developing rapidly in Poland, and the trend is expected to continue in the next several years. Alongside large metropolitan areas, developers are increasingly eyeing smaller cities and towns.

The boom in modern retail space in Poland has been fueled by the country's growing prosperity, diversified product ranges and wider access to global brands. New shopping malls keep popping up in large urban areas such as Silesia, Wrocław, the Gdańsk-Sopot-Gdynia Tricity, Poznań and Warsaw, but the volume of modern retail space has also started growing rapidly in smaller cities such as Płock, Białystok and Wałbrzych. Consumers in such places have grown tired of long shopping expeditions to big cities and nowadays many prefer to do their shopping close to home. This new trend generates demand for new shopping centers.

New projects
According to data from the Emmerson real estate services company, at the end of June this year, the volume of modern retail space in Poland totaled 7.77 million square meters, 17 percent of which was located in Warsaw. Around 180,000 sq m of modern retail space was delivered to the market across Poland in the first six months of this year. Investors are announcing many new projects in the coming years which by 2010 will result in more than 2.6 million sq m of new, modern retail space, mostly in Poznań and Wrocław, Emmerson says.

Regions taking off
The Warsaw metropolitan area is the unquestionable leader in the volume of modern retail space. The total supply of such space in Warsaw exceeded 1.32 sq m in the first half of this year. Last year, almost 100,000 sq m of new retail space was delivered to the Warsaw market, according to Emmerson data, and although investment projects in Warsaw have lost some of their momentum, developers still value this market and seek new locations in the area. Emmerson says that currently planned projects will provide Warsaw and its surroundings with another 230,000 sq of modern retail space in the next three years.

Outside Warsaw, Silesia is the market which boasts the largest volume of modern retail space, over 700,000 sq m in the metropolitan area and another 980,000 sq m in the entire Silesia region. Further down the league table are the Tricity, at 462,000 sq m, and Wrocław, at 457,000, according to data by real estate services company Colliers International.

The order looks somewhat different in terms of market saturation. According to Colliers International, the second city after Warsaw in this respect is Wrocław (720 sq m per 1,000 inhabitants), followed by the Tricity (614 sq m), and Poznań (597 sq m). In terms of saturation with retail space to be delivered by the end of 2010, Wrocław and Poznań are in the lead, at 1,180 and 1,130 sq m per 1,000 inhabitants respectively.

Emerging markets
In addition to building shopping malls in major cities, investors see a growing need to discover new markets and build shopping centers in smaller cities and towns. This is the result of rising wages in Poland and a desire to reach wider groups of consumers.

The volume of retail space outside major Polish cities totals 1.3 million sq m. According to Colliers International, by 2010 the figure will almost treble and regional shopping centers will account for 38 percent of the total amount of retail space nationwide.

One of the most attractive emerging markets is Wałbrzych, a city with a huge amount of space that was formerly occupied by industrial plants. The interest in new shopping centers is huge, with monthly rents reaching 28 euros per sq m, according to data by real estate consultants CB Richard Ellis.

Other popular locations are smaller cities in eastern Poland, such as Lublin, Rzeszów and Białystok. The largest shopping mall under construction in eastern Poland is Felicity in the Felin district of Lublin. The developer for this two-level mall with a total area of 220,000 sq m (100,000 sq m to let) is Gray International. When it opens in the spring of 2010, Felicity will house around 260 stores and boutiques, 25 cafes, snack bars and restaurants, alongside recreational and entertainment facilities such as a fitness club and a 10-screen multiplex of the Multikino chain. The largest tenants in Felicity are a Real hypermarket and a Leroy Merlin do-it-yourself store.

In the Kujawy-Pomerania region, one of the largest malls is the Focus Park in Bydgoszcz, which opened in April. Focus Park is a chain of modern malls that the Parkridge Retail Poland company is building in the centers of towns and middle-sized cities with a population from 50,000 to 400,000. Other Focus Parks have opened in Zielona Góra in western Poland and in Białystok. The one in Bydgoszcz has a total area of 93,000 sq m, including 54,000 sq m of retail space. On two levels, Focus Park houses 150 stores, service outlets, restaurants and a 13-screen Cinema City multiplex. The mall was built on the site of a former meat plant. The investor renovated four tenement houses from the early 20th century, which now form the facade of Focus Park on the side of Jagiellońska Street. The building's newer section is made of stone, metal and glass. The project cost around 60 million euros.

In August, more than 100 stores and service outlets opened on 37,000 sq m in Karolinka, the largest shopping center in the Opole region. Built by Mayland Real Estate, Karolinka will grow to 70,000 sq m by the end of this year when an adjacent shopping park opens. It will consist of retail outlets centered around a Leroy Merlin do-it-yourself store, a furniture store named Agata, and Electroworld, a store with electronic equipment and household appliances.

New projects are sure to gain momentum in regional cities, as demand for modern retail space comes from both residents and shopping chains. The most active developers specialized in this type of projects include Echo Investment, Jermon Developments, Polimeni International, Mayland Real Estate, Caelum Development, IGI, and Spirit International.

Regional cities are also set to outclass large ones in terms of market saturation. Analyses by Colliers International show that while for most of them the figure usually stays below 500 sq m per every 1,000 inhabitants, in many cities, such as Wałbrzych, Płock, Białystok, Opole, Rzeszów, and Słupsk, it will rise above 1,000-1,500 sq m still before the end of 2010.

Higher demand, higher prices
Low vacancy rates in the largest metropolitan areas are a sign of high demand among tenants. Real estate market consultants expect the demand to continue growing, because more brands are being introduced to the market and shopping chains are planning rapid expansion.

Rents in modern retail outlets have increased and there is every indication that the trend will persist, especially in the most attractive shopping malls. Rents depend on the location and popularity of a given shopping center on the local market, the size and location of the rented space, the purpose of the outlet, and the prestige of the tenant.

According to the Emmerson real estate services company, monthly rents for the best premises sized between 100 and 150 sq m in the most attractive malls range from 40 euros per square meter in ŁódĽ to 55 euros in Cracow, the Silesia region and Wrocław. Warsaw is more expensive, at 60 euros per sq m per month. The most expensive shopping streets in Warsaw are Nowy ¦wiat and Chmielna, where the rates exceed 100 euros per sq m per month. Developers who invest in smaller cities are able to secure profitable rates, though obviously lower than in the major cities. By investing in new markets with little or no competition, owners of modern retail outlets can expect to generate high interest among tenants and attract popular brands.

Magdalena Fabijańczuk

Grzegorz Mroczek, lease department director, Caelum Development:

Cities of under 100,000 inhabitants are currently the hottest spots in the competition for tenants and consumers. The quality of shopping centers under development in such locations is no inferior to that of malls in large cities-the new buildings are superbly designed in terms of both architecture and space lease structure.

Residents of small cities often travel to modern malls dozens of kilometers away and that is where their shopping preferences are formed. They have the same expectations as residents of Warsaw, Poznań or Gdańsk with regards to the standard and comfort of shopping leisure time and entertainment, and they expect to find the same fashion brands.

At the same time, small cities are home to an equally large group of consumers whose shopping habits need to be developed. In a way these people need to learn how to use a shopping center. Many locals have shopped at the same market place or hall for generations. This poses the dilemma of whether new shopping centers should offer high, timeless design standards or perhaps those should be lowered so as not to create barriers on the local market. I believe that in time buyers who are "afraid" of high standards will accept modern shopping centers, embracing them not just as stores, but a place to spend their free time. The crucial condition is to combine a wide range of goods and services under one roof. Developers are increasingly keen to assign space in their projects for movie theaters, bowling alleys and fitness clubs, which adds significantly to the community function of shopping malls.
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