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The Warsaw Voice » Real Estate » September 30, 2009
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Large Cities Back in the Game
September 30, 2009   
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Reluctance by banks to hand out loans and cautious tenants have forced shopping center developers to freeze new projects. Nevertheless, several original projects have sprung up-those on which construction work started before the crisis.

At the end of the first half of this year, the total supply of retail space in Poland was 7.13 million sq m. About 340,000 sq m of new retail space was put on the market during that time, according to Colliers International.

The largest project opened in the first half of the year is Poznań's Galeria Malta by Spanish investor Neinver (54,000 sq m of retail space). This is the largest retail/entertainment center in western Poland and is located in the heart of Poznań's green Malta district, the part of the city on the shore of Lake Maltańskie. The mall lies at the intersection of Baraniaka and Katowicka streets, a five-minute drive from the city center, along the route from Ławica International Airport. Galeria Malta houses 170 stores, service outlets, a multi-screen Multikino movie theater, a fitness club, numerous cafes and restaurants. The center was designed by the Ewa and Stanisław Sipiński, APA Wojciechowski and Diagram architectural studios.

New openings
The average amount of retail space per 1,000 residents in Poland is 190 sq m at present, which is still significantly less than in Western Europe where the figure is more than 250 sq m per 1,000 residents, according to CB Richard Ellis. Warsaw has the most shopping mall space (about 1.2 million sq m), followed by Upper Silesia (about 800,000 sq m). The highest index of retail space per 1,000 residents is in Poznań (900 sq m) and Wrocław (800 sq m), and the lowest is in Cracow (450 sq m) and Upper Silesia (370 sq m).

A major event this year will be the October opening of Galeria Jurajska in Częstochowa. This is the third project by the Globe Trade Centre company in the retail/entertainment center segment in Poland and the first modern facility of its kind in Częstochowa. Construction began in February 2008. Galeria Jurajska is located on an 8.5-hectare plot right next to national highway No. 1 linking northern and southern Poland. Its 49,000 sq m of retail and entertainment space includes 200 stores, service and food outlets as well as a multi-screen Cinema City movie theater. Stores include Alma (3,400 sq m), Peek&Cloppenburg (3,000 sq m), the LPP Group-Reserved, Cropp, Home & You, Esotiq, House, Mohito (2,900 sq m), Mega Avans (2,800 sq m), and the Inditex Group-Zara, Bershka and Stradivarius (2,600 sq m).

October will also see the opening of Wzorcownia, a multiple-function urban project in the center of Włocławek, on the redeveloped premises of a former pottery factory. The project will ultimately comprise four facilities: a modern shopping mall, a recreation and entertainment center and two buildings for rent as apartments with a retail/service ground floor. The investor is Budizol Property. The total amount of space for rent at Wzorcownia exceeds 20,000 sq m. Retail and service outlets will take up 16,800 sq m. The mall's main tenants are Alma, H&M, New Yorker, Reserved, Almi Decor, Benetton, Sephora, MK Bowling, Gymnasion and KFC.

Next spring, ŁódĽ's retail commercial real estate market will have the Ikea Port ŁódĽ project with 100,000 sq m of space. The IKEA store, whose opening is planned for this November, will occupy 33,000 sq m. The retail complex, located in the suburbs on Pabianicka St., will house about 200 retail outlets. These will include a Leroy Merlin home improvement hypermarket, an Alma delicatessen as well as Douglas, Kakadu, Cartoon Planet, Rossmann, Vision Express, Galeria Prezentów and ¦wiat Ksi±żki stores. Port ŁódĽ will have a total of 4,500 free parking spaces above ground and in an underground garage. At the center of the complex there will be a 10,000-sq-m recreation and retail zone with a play area, a stage and a garden with trees.

Damp squib in small towns
Developers' ambitious plans to develop shopping centers in small and medium-sized towns (below 50,000 and 100,000 residents) have proved a damp squib. For months now, the opposite trend has been visible-a growing focus on Poland's eight biggest cities. As Jones Lang LaSalle reports, over 60 percent of available space for rent is located in those eight largest conurbations. However, according to the same agency, over 60 percent of commercial space currently being built is in small and medium-sized towns. Analysts explain that this is the effect of decisions made before September 2008, during the construction boom. The situation most desired by developers is strong purchasing power and low saturation of retail space in a given region.

In November, Parkridge Retail Poland plans to open its Focus Mall retail and entertainment facility in Piotrków Trybunalski. The center's retail space totals 35,000 sq m on two stories, housing 110 stores, smaller outlets and service points. Clothing brands on site will include H&M, Reserved, New Yorker, C&A and Solar, while sports goods brands include USA Sports, Martes Sport, Active Sport, Umbro and Sizeer. In the entertainment section, the center includes a Helios movie theater, a KFC, IQ Caffee and a Grycan ice cream bar.

Picky tenants
Tenants are increasingly picky when choosing a location. Greater value is placed on centers that have established themselves and those that have always been popular. Though Poland still needs new retail space, the crisis has caused developers to tone down their aspirations, especially in small and medium-sized towns. Problems with obtaining funding and slower commercialization of retail facilities has cut the number of new projects being launched and even halted work on some facilities already under construction, for instance Felicity in Lublin (Gray International) and Millennium Hall in Rzeszów (Conres Sp. z o.o.). Many centers are being redesigned-capital-intensive movie theaters and leisure facilities are being replaced by hypermarkets and shopping malls. The launch of many projects is being hampered by the policy of banks. Małgorzata Trzaskowska, director of the retail space department at Colliers International, says that "developers who decide to start a project and need external financing have to reckon with tougher requirements regarding renting out their project. At present a minimum of 50 percent of the space has to be covered by pre-lease contracts. That's not an easy task, as commercialization is progressing more slowly today than it did just a few months ago. This is because some chains are looking for savings, temporarily abandoning or delaying further expansion."
Magdalena Fabijańczuk

Stormy Times on Tenant Market
Anna Wysocka, Head of Retail Agency, National Director, Jones Lang LaSalle Warsaw:

In 2007-2008, the most popular destination countries for brands entering new markets were Turkey, Russia, Poland and Romania. In all, over 55 percent of brand migrations were directed towards Central and Eastern Europe. Such substantial activity on young markets, among fashion brands in particular, was due to prospects of high profits, growing brand awareness as well as changing consumer habits and the decreasing proportion of food in the shopping basket.

Today, however, retail chains are feeling the effect of limited opportunities for financing their development, which is reflected in slower expansion both to new markets and in existing ones. We are currently observing serious financial problems of many companies, often leading to bankruptcies being announced of brands that previously carried out ambitious market expansion plans, to mention Semax and the Monnari Group. Also foreign chains that planned to enter the Polish market in 2008 (Primark, Donna Karan) have put their development plans on hold, waiting for the situation in their home markets to improve.

One of the most important parameters with a negative impact on the conditions in which retail chains operate is the persistently high exchange rate of the euro, which means higher rents for tenants compared with 2008 and higher prices for previously signed-up collections.

Another major aspect that influences retail chains is the lower retail sales growth rate, especially compared with the excellent figures for 2006-2008, when retail sales grew 15-20 percent year by year.

The present situation is conducive to mergers and acquisitions. This process may become especially visible in the clothing sector, where there are opportunities today to profitably take over large portfolios of attractive locations. The appearance of available premises on the market will create advantageous conditions for companies planning to enter the Polish market, which will be able to build a presence for themselves at shopping centers with a strong market position.

We also expect increased development of retail concepts focusing on consumers' everyday needs and positioned in the commercial sector among both grocery chains (discount grocery stores, hypermarkets) and the fashion sector.

Tenants Dictate Terms
Jarosław Fijałkowski, CEO CEE Parkridge Retail:

The crisis has been eliminating those companies which previously failed to base their operations on sound business strategies. Those whose operations follow well thought-out and realistic plans and whose flexibility has enabled them to readjust to changing conditions, are still standing. This phenomenon is clearly visible in the retail center market, where the strong remain while centers with poor product ranges and marketing strategies have fallen by the wayside. Tenants have been affected by a similar process. The only ones still with us are those which best coped with the crisis. The weak have fallen.

While demand to lease space in retail centers has not dropped off dramatically, the fact remains that tenants are now in a stronger position and can negotiate a much better lease price for a given building than they have been able to up until now when signing lease contracts. Developers are more frequently investing in fixtures and amenities that were previously paid for by tenants-for example air conditioning and glass displays. These days, the terms are often dictated by the tenant, whereas last year the market was still the preserve of the developer and there were several prospective tenants to choose from.

There is no doubt that the retail center market still has a promising future and expansion potential despite the present snag caused by the economic crisis. The banks are lending again although they are still cautious and are choosing to work with select developers-ones with attractive projects.

We can also observe a new trend-the market for retail centers and shopping places is moving in the direction of retail parks. These are cheap projects which can be put up quickly and they are usually located on the outskirts of town. This is where you can find the cheapest products, which is precisely why customers are most interested in them at this time of crisis.
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