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The Warsaw Voice » Real Estate » October 27, 2011
The Real Estate Voice
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New Shopping Centers in the Offing
October 27, 2011   
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The Polish retail property market is showing clear signs of revival, and the volume of market transactions has increased, though optimism is tinged with caution.

According to the Property Times Poland Q2 2011 report by real estate services company DTZ, the total supply of modern retail stock in Poland (defined as retail projects exceeding 5,000 sq m GLA delivered after 1990) totaled 10.5 million sq m at the end of the first half of this year. Cumulatively, new projects delivered in H1 2011—including new shopping centers and extensions as well as retail warehouses—amounted to approximately 290,000 sq m.

DTZ forecasts that new supply by the end of 2011 will reach approximately 500,000 sq m gross leasable area (GLA), which will bring the annual volume of retail completions to around 800,000 sq m. The major ones include Millenium Hall in Rzeszów and Kaskada in Szczecin. Currently there is some 900,000 sq m under construction with opening scheduled between 2011 and 2013. Major examples of retail projects planned to be delivered after 2011 include Galeria Katowicka in Katowice, Alfa Grudziądz in Grudziądz, and Galeria Olimpia in Bełchatów.

The growing trend of developers’ interest in smaller cities is noticeable. Almost 50 percent of the deliveries in H1 2011 were completed in cities with fewer than 200,000 inhabitants such as Nowy Sącz, Leszno, Ostróda and Słupsk.

“Among recently rising trends, DTZ has recorded growing interest from landlords in redevelopment and repositioning their activities with the aim of increasing their proactive retail asset management of existing projects,” said Anna Staniszewska, Consulting and Research Director at DTZ.

According to real estate advisory firm Cushman & Wakefield, there are currently over 370 shopping centers in Poland with a total floor space of 7.2 million square meters; 56.5 percent of this space is located in the main urban centers. The largest shopping centers such as Arkadia in Warsaw, Manufaktura and Port Łódź in Łódź offer over 100,000 sq m of space each. Shopping centers are also under construction in smaller cities with 50,000-100,000 residents.

Both international and Polish developers and investors operate on the retail market. Retail space tenants include well-known Polish and foreign retail chains. Major food retailers include the foreign-owned Tesco, Carrefour, Real and Auchan. The DIY sector is represented by Castorama, OBI, Leroy Merlin and Praktiker. The highest rental rates for space in downtown shopping centers are in Warsaw, where they stand at 75-80 euros per sq m per month.

With just over 210 sq m of GLA per 1,000 residents, the modern retail network in Poland remains underdeveloped compared with Western Europe. However, development activity is gradually accelerating and currently there is around 1.2 million sq m of shopping center space under construction to be delivered before 2014. Over 60 percent will be delivered in medium-sized and small cities.

Main shopping streets across the world

Despite fragile economic recovery and consumer uncertainty in many countries, global retail property markets have been much busier during the last year, according to a report by Cushman & Wakefield. Over four-fifths (81 percent) of the 63 countries surveyed by the global real estate adviser for its Main Streets Across the World report recorded prime rents increasing or remaining static over the year to June. This represents a large increase on the previous year (66 percent). Around a fifth of countries (19 percent) saw rents falling, compared with over a third (34 percent) in 2010.

The report provides a barometer of the global retail property market, tracking rents in the top 278 shopping locations across 63 countries. It includes a ranking produced using the most expensive location in each of the countries.

New York’s Fifth Avenue, where rents jumped by 21.6 percent, retained its spot as the most expensive shopping street in the world for the 10th year running. Causeway Bay in Hong Kong remained in second place, and Tokyo’s Ginza in third.

The biggest climber in the top 10 was Pitt Street Mall in Sydney, Australia, which jumped from ninth place to fourth following major redevelopments. Rents there leapt by 33.3 percent year-on-year. Despite a rental increase of 4.3 percent, London’s New Bond Street dropped two places, from fourth to sixth. The UK street falls behind Avenue des Champs-Elysées in Paris, which is now the most expensive retail location in Europe, having registered a rental uplift of 5.3 percent, compared with a decrease of 9.5 percent last year.

According to the Cushman & Wakefield report, the most expensive street in Poland is Warsaw’s Nowy Świat with an average rent of 1,020 euros per sq m per year. Nowy Świat came in 41st in the league table of the most expensive shopping streets in the world, down from 40th place in 2010. Other major Polish shopping streets on the list are: Floriańska Street in Cracow, with an average annual rent of 948 euros per sq m, Chmielna Street in Warsaw (876 euros per sq m per year), Marszałkowska Street in Warsaw (744 euros per sq m per year), Półwiejska Street in Poznań (696 euros per sq m per year), 3-go Maja Street in Katowice (696 euros per sq m per year), Jerozolimskie Avenue in Warsaw (600 euros per sq m per year), Świdnicka Street in Wrocław (564 euros per sq m per year), Świętojańska Street in Gdynia (420 euros per sq m per year), Niepodległości Avenue in Szczecin (396 euros per sq m per year), and Piotrkowska Street in Łódź (348 euros per sq m per year).


Commentary
Optimism Tinged with Caution
Katarzyna Michnikowska, Senior Analyst, Valuation & Advisory, Cushman & Wakefield:
The improved sentiment in the investment market in H1 2011 was reflected in the Polish retail market, which shows clear signs of revival. But this optimism is tinged with caution. Major players are still looking to prime schemes and to those assets where developers scaled back their financial expectations.

The occupancy market in Poland is varied. There remains a healthy appetite for established retail in good locations. The highest rents in such schemes are 75-80 euros per sq m per month for a unit covering 100-150 sq m. Shopping centers delivered to the market during 2009-2010 posted steadily growing turnover and footfall figures, and falling vacancies. However, only a few new developments attained a 100-percent occupancy rate prior to opening.

Lease terms, along with location and quality, are major factors affecting tenants’ decision to take retail space in projects being developed simultaneously. Retailers are looking for the most flexible lease terms, and/or the most generous fit-out contributions.

Despite positive economic data, occupiers remain cautious, eyeing up lease opportunities and avoiding quick decisions. Most retail chains have shelved some of their expansion plans. Further consolidation and acquisitions are expected, which will weaken developers’ positions, as they are forced to improve lease terms even further. Large clothing chains are known for implementing expansion plans quickly, but even they are seeking favorable lease terms, including turnover rent and the owner’s fit-out contribution. Small retail chains’ interest is focused on prime locations offering high footfall and revenues.

With retail development remaining subdued, modern space provision in H1 2011 is forecast to reach around 300,000 sq m of GLA, similar to the completion levels of the same period last year. The expected gradual rise in development activity will push completion levels up, but this is not expected before 2013.

Galeria Echo in Kielce, a project by Echo Investment, has been nominated by an international panel of judges for the MAPIC awards in the best enlarged retail development category.
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