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The Warsaw Voice » Special Sections » February 23, 2012
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Retail Chains Find Poland Attractive
February 23, 2012   
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Last year showed that the Polish market for retail space still has substantial potential for development.

According to real estate services company Jones Lang LaSalle, at the start of 2012, Poland’s shopping centers offered a total of 7.58 million sq m of rentable space. About 487,000 sq m of new space was delivered to the market in 2011, 17 percent more than the year before. Of that volume, 80.5 percent was located at newly built shopping centers, while the other 19.5 percent came from the expansion of 10 existing facilities. The most new space was completed in small towns (population below 100,000) while the eight main conurbations accounted for just 25 percent, the lowest result since the start of this sector’s development.

Market analysts point out that the greatest change to the balance of forces on the Polish market can be observed in towns opening their first modern shopping centers or projects distinguished by special quality and a special tenant mix. 2011 also saw improvement in the shopping parks and specialist mega-department stores segment. More than 293,000 sq m was completed in these facilities, of which almost half was in the home and garden sector. One discount outlet mall also opened: Factory in Modlniczka near Cracow.

Jones Lang LaSalle’s data shows that tenants were still cautious about starting new projects in 2011. The pace of development of the biggest tenants (“anchors”) remained the same, while smaller tenants often sought franchising partners. Smaller markets and those saturated with retail space are studied carefully by prospective tenants. This results in smaller demand for space, leading to growing pressure for rent reduction in some cities. Demand for space at the best retail centers remains high. The lists of tenants waiting for space to become available have not shrunk, either. At such centers, rents are unlikely to change.

New brands at new facilities

The Polish market’s potential is reflected in the fact that in 2011 almost 40 international brands launched operations in Poland. They represent various sectors, including home and garden, fashion, footwear and catering. They include Toys’R’Us, GAP, Foot Locker, Desigual, Dorothy Perkins, and Lindex. The opening of the vitkAc Fashion House in Warsaw enabled many familiar icons of luxury to debut on the Polish market; they include Gucci, Bottega Veneta, Yves Saint Laurent and Lanvin.

“More and more often, Poland is considered separately from the rest of the Central and Eastern European region,” says Edyta Potera, a director at Jones Lang LaSalle. “Observing the economic situation, international brands notice the Polish economy’s stability and its good development prospects. That’s why last year saw the arrival of such market giants as GAP, Foot Locker and Toys’R’Us. Furthermore, the Polish market is being eyed by a number of luxury brands to which Poland appears as a potential growth market. In addition, due to the country’s size and population there are substantial opportunities for development on many smaller markets beyond Warsaw. This enables individual chains to optimize their development strategy, making Poland a very attractive location for many tenant groups.”

Space totaling about 707,000 sq m is currently under construction in shopping centers, of which about 495,000 sq m is due to be completed this year. The smallest towns (population below 100,000) will account for about 45 percent of this new space, and about 29 percent will be built in the eight biggest cities. Developers are focusing mainly on small and medium-sized projects; 72 percent of the new space will be located at facilities of no more than 40,000 sq m. Major projects slated for completion by the end of the year include Europa Centralna in Gliwice, Nova Park in Gorzów Wielkopolski, Auchan in Łomianki near Warsaw, and Galeria Korona in Kielce. City Center in Rzeszów and Galeria Trzy Korony in Nowy Sącz could be finished as well.

Commercial real estate consultants Colliers International say the Polish market is perceived as attractive and as yet unsaturated in terms of brand availability. This is confirmed by the considerable interest international retail chains have been showing in entering the Polish market. Large international chains that already have a market presence are seeking new opportunities in smaller towns, which is possible thanks to developers’ increased activity in these locations. Two U.S. foodstuff brands entered Poland in September 2011. Silesia City Center in Katowice saw the opening of the first Cinnabon outlet in this part of Europe; the world-famous brand offers cinnamon baked goods. Warsaw’s Złote Tarasy mall welcomed the Redberry chain specializing in frozen yogurt desserts. A similar range has been introduced by another international chain, Yogen Fruz of Canada, which opened its first outlets at Warsaw’s Galeria Mokotów and Wola Park malls. Not just large multinational chains but also smaller domestic ones are developing intensively. One example is the Harpers Shoes footwear chain, launched last year, which has opened stores in several places.

According to Colliers International, in the third quarter of 2011 the vacancy rate in the main Polish cities remained similar to the results after the first six months of the year, at 1.8 percent in the eight biggest conurbations. The lowest vacancy rate, below 1 percent, is reported in Warsaw and Szczecin. The greatest amount of available space, vacancy rate close to 3 percent, is found in the Tricity. No significant rent changes have been observed recently, rents remain stable. Prime rents for premises about 100 sq m in area leased by tenants from the fashion sector at the best shopping centers in the biggest Polish cities range from 70 to 90 euros per sq m per month.

The most prestigious shopping streets are in Warsaw and Cracow. The highest rents are reported on Nowy Świat Street and Trzech Krzyży Square in Warsaw, at 75-110 euros per sq m per month, and on Floriańska Street in Cracow, where they range from 70 to 100 euros per sq m per month.

Interest in smaller towns

The substantial activity of developers leads to retail chains’ interest in expansion, particularly with an eye to smaller towns. That’s why sector experts predict that the vacancy rate in the best locations will remain low. Some growth may be reported at older-generation shopping malls whose standard prevents them from competing with more modern centers. Rents in the coming quarter should not change significantly.

Seven smaller towns in central Poland have strong investment potential on the retail market, according to a report by Colliers International focusing on the untapped potential of smaller towns. The report reviews the retail markets of towns whose population ranges from 30,000 to 100,000. They are analyzed in terms of existing and planned supply of modern retail space and economic indices such as unemployment and the local population’s purchasing power. Pruszków, Otwock, Grodzisk Mazowiecki and Sochaczew are listed as the most attractive locations for new retail projects in Mazovia province. In Łódź province, the towns with potential are Zgierz, Kutno and Wieluń.

Retail markets in smaller towns differ significantly among themselves in terms of stage of development and local conditions, which makes them rather hard to compare with any reliability. However, there are certain key factors that determine the success of a project planned in a given location. They include the attitude of the local authorities, infrastructure development, availability of land and the residents’ shopping habits. These are important elements that can make or break a project. A map of new “trade routes” could be the first step toward indicating places with high potential that can translate into a project’s success.

“Such potential gaps are an interesting alternative for bigger cities that are already relatively well saturated with existing retail space,” says Dominika Jędrak, a director at Colliers International. “Smaller towns are a worthwhile option for investors who want to carve out a presence for themselves in new locations with bright prospects.”

One example of a project in a smaller city is the Vis a Vis Street Mall in Radom, opened late last year. This project houses more than 20 brand-name stores and service outlets, and has a total leasable space of 3,663 sq m. The investor, Capital Park Group, plans to complete a second Vis a Vis Street Mall in Łódź, with a planned space of 7,078 sq m. The scheduled starting date is the fourth quarter of 2012.

True to European trends

The optimistic forecasts for the Polish market are confirmed by studies on the prospects for the EMEA region. According to the latest research by CBRE, the plans that international retail chains have for next year still include large-scale expansion, despite unfavorable conditions on the consumer market and the growing importance of online sales. CBRE’s annual research report on the activity of retail chains in the EMEA region shows that although companies want to conduct retail sales in many countries next year, on both mature and developing markets, they are focusing their attention mainly on opening stores in countries where they have been present for some time. Companies adopted a similar strategy in 2011 as well.

Topping the list of countries that retail chains choose for expansion is Italy, a first for the country which came eighth last year. Italy is followed by Germany, Russia, Spain and France. These are the five most popular countries chosen as sales markets for 2012. Over 30 percent of all retailers plan to sell goods in all of them. Poland came in 10th (compared with second last year); 26 percent of retail chains polled plan to expand their Polish operations.

“Poland’s lower position on the ranking list is due to the shortage of available modern retail space,” says Magda Frątczak, a director at CBRE. “Just as we predicted a year ago, the plans of shopping center developers are still limited and have had a major impact on the expansion plans retail chains had for certain markets. We said then that if no dramatic increase occurred in the supply of new retail space, new chains wanting to enter our market would have a limited choice of options. That’s exactly what happened. Today more than 1 million sq m of modern shopping malls of various formats is under construction and we hope this will greatly improve our situation and the availability of space for retail chains new to Poland and those already present here.”

The CBRE report suggests that even though retail chains are oriented toward many different markets, they are still trying to minimize risk. More than half of them (52 percent) plan to open stores in new cities, but on markets where they have a presence; a similar percentage was reported last year. The number of retailers intending to open more stores in cities where they already operate has grown—from 9 percent last year to 17 percent this year, which confirms that companies are focusing on the markets they know best. Despite this circumspection, almost one-third of retailers (30 percent) plan to enter new markets in 2012; the percentage was similar in last year’s survey.

Value & Denim (denim goods and clothing at affordable prices) is the most attractive sector, with retailers planning to open an average 36 stores in 2012 (compared with 30.3 stores last year). Faced with shrinking disposable incomes, many consumers decide to buy cheaper products and retailers offering affordable prices are taking advantage of this to win a bigger market segment.

Despite the economic turmoil, the luxury and business fashion segment is also doing well; in this case companies plan to open an average 15.1 stores in 2012, a little more than they planned for 2011. Corporations like LVMH (owner of the Louis Vitton brand) and Burberry recently reported significant sales growth. The whole sector is vigorously stepping into developing markets. In the consumer electronics market, on the other hand, companies are showing the lowest level of expansiveness, this year planning to open half the number of stores they planned for last year. This is no surprise when customers are cutting spending on the most expensive products and if they do buy electronic goods, it’s more and more often online.

Online sales are still a major item on the list of retailers’ plans. Though a multi-channel approach is the best way of maximally increasing sales potential, internet trade platforms will be the segment with the fastest rate of development in the coming years. Three-quarters of all retailers plan to increase their transaction capacity in 2012. The CBRE survey shows that 43 percent of retailers plan to expand their range of products available online substantially next year, and 28 percent plan a significant increase in the geographical scope of their transaction capacity. Many vendors start operations in a new country with launching an internet platform to sound out the market before opening a conventional store. In many cases, a presence on the online market is enough.
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