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The Warsaw Voice » Real Estate » November 12, 2008
Special Edition: MAPIC 2008
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Warsaw Retail Market
November 12, 2008   
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Though dozens of new shopping centers have been built in Poland in recent years, demand for new ones is not weakening. This also applies to Warsaw. Investor interest is slowly shifting to smaller towns, but the capital is still a desirable location with the highest rents.

The Warsaw market is the most mature market for retail space in Poland. Its supply totaled 1.55 million sq m in October. Warsaw has 60 retail centers that count as modern space, each with over 5,000 sq m for lease. The current saturation level is 843 sq m per 1,000 residents for the city of Warsaw, and 506 sq m for the whole conurbation. Specialists from DTZ real estate services company estimate that over 300,000 sq m of new retail space will be built in Warsaw over the next three years, increasing the saturation rate to 1,007 sq m (605 sq m for the conurbation).

Capital potential
In terms of the overall situation on the retail market, Warsaw is no different from the rest of the country. Demand is still strong; Warsaw has a large percentage of young, well-educated and affluent residents (the average monthly salary in the corporate sector in August was zl.4,202, more than 132 percent of the national average). They are the main target for leading retail chains. Moreover, this group is growing with every year with the rapid expansion of existing residential estates and construction of new ones. The increasing salaries of Warsaw residents translate into higher purchasing power and higher spending, leading to growing sales for retail chains and increased demand for modern retail space in the Polish capital. Consequently, especially the largest chains are deciding to expand further and set up new outlets.

Warsaw in demand among big players
The most desirable locations for new brands entering the Polish retail market continue to be Galeria Mokotów and Arkadia, closely followed by Sadyba Best Mall, Promenada, and Blue City. All these facilities are counted among what are known as third- or fourth-generation centers: with multiple functions and a drive to bring in customers with their own attractions unrelated to retail trade.

The Arkadia center, beside two hypermarkets and a number of stores and service outlets, includes a Cinema City multiplex movie theater, a pharmacy, an Enel-Med medical center, three bank branches, and the Chiccolandia children's play center.

At Blue City, customers will find several dozen different stores as well as a car rental desk, banks, a post office, laundry, courier service desk, and extensive leisure facilities: Magic City (including the Inka Play center for children), Kamuflage Skate Park, Squash City, Paintball, and ATA Remote-Controlled Models. This center also has an office and hotel segment (currently under construction).

Galeria Mokotów, the oldest of these centers, has extensive entertainment facilities next to its many stores, while Złote Tarasy has several dozen stores, a food court, a pharmacy, a Multikino multiplex, the Games World, and two music clubs of several hundred square meters each: Jazz Club Akwarium and Hard Rock Cafe.

Leading multinational and Polish retail chains are launching new brands and increasing the surface area of their stores to expand their range and increase convenience for shoppers. Further growth of interest can also be noted among exclusive brands, which are looking for the best locations in Warsaw for their stores. More new brands are appearing in Warsaw's modern shopping centers. According to the latest report from Jones Lang LaSalle, over the past year Galeria Mokotów has attracted brands such as Massimo Dutti, Guess by Marciano, Liu Jo, and Haagen-Dazs ice cream. Poland's first Etam lingerie store opened at Arkadia. Other shopping centers are also working to make their range attractive and diverse, to bring in more customers. The Klif center, which offers a broad range of luxury goods, is targeting the high-income customer segment. Reduta and Targówek are turning into family centers offering the possibility of spending time on shopping, fun and education. There has been talk for some time that the Louis Vuitton Moet Hennessy (LVMH) brand is about to enter the Polish market. The LVMH portfolio includes more than 50 exclusive brands from the world of fashion, cosmetics, jewelry and alcoholic beverages, including giants such as Louis Vuitton, Fendi, Christian Dior, Givenchy, Kenzo, Donna Karan, and Guerlain.

Warsaw rents still highest
Monthly rents at Warsaw's best shopping centers range from 65 to 110 euros per sq m. Downtown Warsaw is the most desirable, with rents-in shopping centers or along main shopping streets-of about 100 euros per sq m. As far as shopping centers are concerned, tenants can choose between cheaper and more expensive locations. Specialists from CB Richard Ellis have found that at the start of the second quarter of this year rents were the highest in the centrally located Złote Tarasy, at 100-120 euros per sq m, and only slightly lower in Galeria Mokotów. The rents in Arkadia were lower still, at 70-85 euros. Even more attractive rents are being asked in Blue City, 45 euros per sq m per month on average.

Asking rents for retail space are affected by a number of factors. Yoram Reshef, director-general of Blue City, says one of the main factors is the reputation of a given center and the number of customers visiting it. Location is another factor. "This is not just the distance from the city center, because malls several to a dozen kilometers from downtown Warsaw are not complaining about a lack of customers. The surroundings are important: the proximity of residential estates or office and service districts," says Reshef. "It's no coincidence that experts say success will belong to fifth-generation centers that are combined with office and residential projects (apartment blocks). A major role is also played by the proximity of important transport routes. We shouldn't forget about the standard of a facility, either. Many factors come into play here: from the number of parking spaces-which in a way restricts a center's accessibility to visitors-to the interior decoration, disabled access and safety and security standards."

The future according to experts
Experts from international real estate services company Jones Lang LaSalle say that though no large retail projects are planned for the next two or three years, there is still substantial demand for new shopping facilities in the Warsaw conurbation. Developers' attention is currently focusing on small local malls, with areas of 10,000-15,000 sq m and a supermarket as the key tenant. This is linked to the rapid development of the residential market, shortages of retail and service outlets near new housing, and residents' preference for shopping locally and in a short time.

DTZ's Ewa Derlatka-Chilewicz shares this opinion. "The Warsaw market will soon be developing in two directions: projects in the city center and in the districts," she says. "Not many multifunctional malls are planned because most districts already have them. The biggest investment opportunities are in those districts that have a rapidly developing housing market, where the number of residents is growing and competition is small. These include Wilanów, Ursynów and Białołęka. They lack large shopping centers with a complete range of shopping and leisure options but also smaller, more compact local centers." Examples of such projects planned within three years include the 14,000-sq-m factory outlet store in the southern part of Białołęka, a retail center in Łomianki near Warsaw, and the Miasteczko Wilanów project.

In the context of the development of local centers, many specialists also highlight the role of fifth-generation shopping centers. These are almost self-contained towns-modern shopping malls with office and residential buildings complementing them.

"This kind of solution means convenience for the users, on one hand, and the chance for growing sales for stores and service outlets, on the other," says Reshef. "How many people who spend most of their time at the office work miracles to find time to do their shopping, go to the post office or the bank? An office next to a shopping center goes a long way towards solving the problem. Everything is within arm's reach-stores, restaurants, service points. This is a trend known in Europe and already discernible in Poland."

The Blue Office complex currently being expanded next to Blue City is one example, Reshef adds. Blue City managers also plan to construct residential buildings on an adjacent plot, according to Reshef.

Downtown Warsaw-toward redevelopment
Another direction in which the Warsaw retail market will develop is the very center of the city. Retail chains are seeking premises for their elegant stores. This is a new trend linked to urban redevelopment and an attempt to restore city centers to their traditional function-retail, service, social, cultural and residential. The main shopping area of the city has developed around the intersection of Jerozolimskie Avenue and Marszałkowska Street. The existing Wars, Sawa and Junior department stores and the planned Wolf Marszałkowska, Likus Bracka as well as the KDT store will strengthen the domination of this part of the city in terms of retail. Nowy ¦wiat Street, Trzech Krzyży Square and Chmielna Street will retain the position of Warsaw's trade and restaurant center. Trzech Krzyży Square is the destination of choice for people looking for exclusive brands (Emporio Armani, Burberry, Marc Cain, Max & Co., and others).

That Warsaw's main streets are still of interest to tenants is also proved by the steadily strengthening position of the Galeria Centrum complex and retail facilities planned downtown: Wolf on Bracka Street and Dom Towarowy Braci Jabłkowskich.

According to Derlatka-Chilewicz, "In the longer term the supply of retail space along the main streets will increase once Defilad Square is developed and the Warszawa Centralna railway station is converted as planned after 2012."

Jones Lang LaSalle says ownership and organizational changes in the area are of key importance to improving the utilization of commercial space along the main shopping streets. Long-lasting and troublesome reprivatization proceedings are starting to yield new investment projects (DT Braci Jabłkowskich), and the Warsaw authorities' declaration that they will return property "in kind whenever possible" bodes well for the development of this segment of the real estate market.

Jones Lang LaSalle also points out that the Warsaw authorities are making far-reaching changes in the management of municipal commercial premises in terms of bringing rents closer to market levels and upgrading the quality of tenants. Retail is being supplemented by restaurants, as a result of which such locations are increasingly being perceived as places for get-togethers, spending free time and entertainment.

Agnieszka Domańska
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