More Modern Shopping Centers
October 31, 2013
The retail property market in Poland is still growing fast, even if not at the heady rate seen in previous years.
According to property consultants CBRE, Poland is number four in Europe in terms of retail property market growth, behind Turkey, Russia and Ukraine. Shopping centers are rapidly developing across Eastern Europe. More than 750,000 sq m of retail space is under construction in Poland and new projects are reshaping the retail landscape in major urban areas.
According to Poland Retail Market Q2 2013, a report by real estate services company Jones Lang LaSalle, some 130,000 sq m of new retail space was delivered to the market in the first half of 2013. As a result, the total shopping center stock grew to 8,130,000 sq m in a total of 353 shopping centers. The total supply of modern retail space (all formats, including shopping centers, retail parks and outlet centers) in Poland amounted to 11,300,000 sq m of leasable area.
Construction activity across the country remains high. More than 730,000 sq m is currently at the development stage, of which more than 370,000 sq m is expected to enter the market before the end of the year (in total 500,000 sq m of new space over the full 12 months). At the beginning of the year, forecasts were even more optimistic: more than 750,000 sq m of shopping center space was announced for this year. It seems that developers have since revised their expansion plans with a few projects postponed or otherwise put on hold.
According to analysts at Jones Lang LaSalle, after a clear interest in smaller cities last year, an evident shift towards major markets is being seen this year: 64 percent of this year’s pipeline will be found in major Polish conurbations, and 29 percent in cities of below 100,000 residents, with the remainder in medium-sized markets. The prevalence of the largest metropolitan areas in the statistics is due to the delivery of large projects, including Poznań City Centre, Galeria Katowicka, Riviera (the new name for the extended Wzgórze center) in Gdynia, Auchan Bronowice in Cracow, and, to smaller extent, Galeria Miejska Plac Unii in Warsaw. Most of these may reshuffle the retail landscape on their respective markets.
In terms of the size of the future projects, medium and large schemes will dominate this year’s openings (more than 76 percent).
Redevelopment and modernization projects
In Poland, unlike in Western Europe, shopping malls are far more popular than shopping streets. Moreover, new shopping centers are being built here all the time. Analysts note, however, that there should be a balance and competition among these types of retail space. The development of shopping streets is favored by a large number of tourists, which is why Cracow is at the forefront in Poland in this regard. “In Western Europe, shopping streets are far more developed. They are where most of the business gets done, while in Poland and other Eastern European countries shopping centers are at the forefront,” Joanna Mroczek, Head of Research and Consultancy at CBRE, told the Newseria news service. “The development of shopping centers should be balanced with the development of shopping streets to ensure a market equilibrium and competition. That would also spur the development of retail trade and the development of new facilities meeting higher quality standards.”
Shopping streets tend to develop better where there are more tourists. That’s why there are more of them in Cracow and Poznań and even in Wrocław than in Warsaw. In addition, they attract luxury brands that are otherwise reluctant to enter shopping centers due to the inadequate quality of retail space, Mroczek says.
According to CBRE, however, shopping centers will be growing faster than shopping streets. This could change with the influx of tourists and the development of Polish cities. Also new development may lead to changes in the proportion between different types of retail space. But it is impossible to speak of a perfect balance between these two types of space, according to CBRE. The most important factor is competition, thanks to which companies will be able to choose between high-quality space.
Trends observed in the last few years on the Polish retail market include numerous redevelopments, expansions and refurbishments of existing centers. “A prime example is Szczecin’s Galaxy. Wzgórze in Gdynia is also worth pointing out, as is Gemini Park in Bielsko-Biała, Ogrody in Elbląg, Ferio in Konin, and Galeria Mokotów in Warsaw—they’re all undergoing rebuilding and expansion,” says Grażyna Melibruda, Associate Director at Jones Lang LaSalle’s Retail Department. “Such strategic changes are introduced in response to growing competition on the market, and the aging of real estate. As a result of work under way, shopping centers are significantly strengthening their position. Another key trend on the retail market is the gradual evolution of downtown retail, in Warsaw in particular. The recent opening of Poland’s first Louis Vuitton showroom in the capital is proof of how big a part high streets are beginning to play in the expansion plans of many brands, especially those in the premium and luxury market segment. On the other hand, plans to rebuild department stores such as Smyk or the Holland Park complex will have a positive impact on the further development of the segment in the capital.”
According to Jones Lang LaSalle, convenience centers—or small shopping centers located in residential areas that allow for quick shopping on the way to or from work—are growing rapidly, and the most intense demand for such facilities can be noticed in the suburbs. Other formats present on the Polish market, such as retail parks, stand-alone facilities, and outlet centers, are growing in a stable way, though much slower than shopping centers. Since the beginning of the year, the retail park sector has grown by 33,700 sq m. The outlet center sector, on the other hand, is growing on smaller markets (25,000 sq m of new space is in the pipeline for Białystok and Lublin).
The regional market highlight was without a doubt the opening in September of Galeria Katowice in Katowice. Galeria Katowice is located in the city center. The 53,000-sq-m facility is home to 250 stores on four floors. There is also an underground parking garage for 1,200 cars there. Galeria Katowice, combined with the railway and underground bus terminal, is one of the most modern Integrated Transit and Retail Centers in Poland. The center can be reached directly by almost all means of transportation: local trains, long-distance rail, international rail, bus, tram, car and bicycle.
Stabilization on the Warsaw retail market
Warsaw is unquestionably the largest retail market in Poland. The retail market in the Warsaw agglomeration is driven by Poland’s highest purchasing power—9,294 euros per person per annum. This exceeds the national average by 61 percent. However, despite large investment projects in recent years in large shopping centers, it is difficult to say that there is too much retail space in Warsaw. The retail space market saturation in the Warsaw agglomeration is 435 sq m per 1,000 residents. Interestingly enough, after the opening of Galeria Miejska Plac Unii, this figure will increase to 444 sq m, but will remain one of the lowest among major Polish agglomerations.
Anna Wysocka, Head of Retail Agency, Jones Lang LaSalle, said, “H1 2013 was a stable period on the Warsaw retail market. It is worth highlighting the growing tendency to extend and remodel existing projects and to refresh their range. A good example is the current expansion of Galeria Mokotów as well as the Klif Center metamorphosis. Additionally, Galeria Wileńska is remodeling its food court. Blue City, Wola Park, Arkadia, Złote Tarasy, as well as Park Handlowy Targówek, are continuously refreshing and enriching their range by introducing new brands and services. Another notable trend is the growth within the convenience sector. Such schemes are also located on the outskirts of the city, boosting the retail offer in Warsaw’s satellite towns. It is also worth stressing the growing importance of high street locations, especially Nowy Świat, Chmielna, Marszałkowska Mokotowska and Plac Trzech Krzyży.”
According to the Warsaw City Report Q2 2013 by Jones Lang LaSalle, the total retail stock, including all sectors present on the Warsaw market—shopping centers, retail warehousing, retail parks and outlet centers—stood at 1.59 million sq m at mid-year and accounted for 14 percent of the total supply available in Poland. Today, the shopping center supply in the Warsaw agglomeration totals 1.08 million sq m GLA within 35 schemes.
Q2 2013 saw one opening of a small, convenience-type shopping center in Podkowa Leśna—Galeria Podkowa (8,000 sq m). In addition, the Auchan center in Łomianki extended its GLA from 22,200 to 32,900 sq m. Galeria Mokotów, one of the most popular shopping centers in Warsaw, is being extended by a further 5,000 sq m. On the second floor, the food court has been remodeled and new restaurants are successively being opened. In addition, an enlarged and refreshed Zara store has opened, and a larger Peek & Cloppenburg is nearing completion. This year, Galeria Miejska, a 15,500 sq m shopping center within the mixed-use Plac Unii project, will open to the public.
Within the last few months, the most notable event on the Warsaw retail market was the opening of the first Louis Vuitton store in Poland in June. The 270-sq-m flagship store is located in the vitkAc center on Bracka Street. Its opening strengthened the country’s luxury retail supply and is expected to contribute positively to further expansion.
Due to the launch of new projects, the range of brands in Warsaw’s satellite towns has been extended. For example, the main tenants in Podkowa Leśna include Marcpol, H&M, CCC, Rossmann and Avans, while Auchan in Łomianki offers brands such as H&M, Reserved, C&A, CCC, Centro, Sephora, and Empik. Despite the high supply, the available retail space stock is well absorbed by the Warsaw market. Strong demand for modern retail space in prime centers in Warsaw keeps the vacancy rate stable at a low level of approximately 2 percent, which is one of the lowest when compared to Poland’s other major markets.
Prime shopping center rents for a 100-sq-m unit, for a fashion sector tenant located in a leading shopping center, remain stable and trade at 80 to 90 euros per sq m per month. The same rental level is observed in prime high street locations. According to Jones Lang LaSalle estimates, due to the upcoming re-commercialization of key retail assets, prime shopping center rents are expected to increase further during the next months, reaching 100 euros per sq m per month.