Bitter-sweet cake

The shopping centre market has still got the bit in its teeth. New centres are going up in attractive locations. New tenants are arriving in Poland, while investors are snapping up properties from developers. But there is an unpleasant fly in the ointment. The participants in our round table discussion speak of the commotion caused by the Large-Scale Shopping Facilities Act, the final effects of which are still nervously awaited

z Ewa Andrzejewska, Magda Konstantynowicz. ‘Eurobuild Poland’: Have shopping centres become things of the past or are they still in the best of health, with rents rising, investors queuing up to buy new properties, easy cooperation with local governments, and potential customers getting wealthier and prepared to spend their cash in modern shopping facilities?

Beata Kokeli, member of the board of TK Polska Operations: Polish society still holds a huge potential for shopping centres. The increase of the gross national product is accompanied by falling unemployment, rising average wages and general consumer satisfaction. There is also another side to the coin, in that investors’ demand for ready projects continues to be strong from Polish and foreign institutions. Admittedly, there are sceptics who claim that the boom is about to peak, but I feel the favourable situation will last at least 2 to 3 years, which means there is still enough time to prepare new developments.

Andrzej Lasocki, head of Investment  Department  of Caelum Development: I must say that there is no clear signal of a slow down in any section of the market. The commercialization of our centres in medium-sized cities with populations above 100,000 now finishes even before the construction stage has ended, with waiting lists for the available space being drawn up before we open for business. It is a fact that the competition is becoming stronger, but the need for new facilities is outstripping the supply of shopping centres. A problem for investors could only come from the increasingly complex procedures which are holding back the development process. It is no secret that many projects have taken five or seven years, or even longer to prepare, including Złote Tarasy in Warsaw and Magnolia Park in Wrocław.

Barbara Topolska, general director of Neinver Polska: I agree that the view that the market is stagnating is greatly exaggerated. The few elements which are changing is the location of new developments and the kinds of shopping centres. For instance: the number outlet centres and retail parks will certainly expand rapidly. Poland has still much to do in the immediate future. The only outstanding questions are over local spatial development plans – which are largely nonexistent, and obscure legislation novelties bringing with them considerable interpretation problems.

AL: We can complain about the latest regulations, but I must speak positively about cooperation with local government. We appreciate their friendliness and openness to, for instance, kick-starting the procedure for approving local spatial development plans, or amending ithem so as to allow the development of shopping centres greater than 2,000 sqm.

z ‘Eurobuild Poland’: Which city would you term as being the most open to modern shopping which is commonly regarded as a killer of small scale local retail?

AL: From my perspective, I would highlight Gorzów Wielkpolski, where we have just opened one shopping mall and are in the final stage of commencing construction of a second one. We have a similar situation in Płock.

BT: The same law is in force everywhere, with everything depending on the approach and good will of specific individuals. You mentioned smaller cities, but I think we shouldn’t forget Wrocław, where you can always count on the local authorities, and where a specific investment is always handled by the same official, for example. This is evidence of a highly professional approach and results in cutting the time it takes to process the paperwork by the city hall.

AL: In this case let me add that Rafał Dutkiewicz the city mayor is not so much a politician, but rather a manager taking great care of the assets with which he has been entrusted.

BT: The situation is improving in other cities, but pride of place must go to Wrocław.

z ‘Eurobuild Poland’: Are you proposing a mode of cooperation with local retailers? Doesn’t local business fear signing contracts with you? After all, they differ completely with those finalized up to now.

BT: New retail projects are not only for large foreign and Polish companies, but for local traders as well. We staged a special meeting for local businesses about Galeria Malta in Poznań. Most interest was expressed by companies offering services. It is worthwhile talking to such partners. As an investor in the Poznań Galeria Malta, we are a member of the Association Malta.eu, which includes the majority of local firms. Its purpose is the promotion of Lake Malta throughout the Wielkopolskie province.

BK: We are always open to cooperation, but that which is followed by a meeting of minds over the realities, with the effect being that around 20 pct of outlets in new centres are occupied by local businesses.

z ‘Eurobuild Poland’: The Polish market has matured and become more competitive, which is forcing you constantly to improve your offer. In our opinion, many projects are very similar to each other – the same tenants, a similar entertainment offer.

BT: New methods are constantly being innovated to make an individual impression. New tenants are helping to achieve this.

z ‘Eurobuild Poland’: But they are still too few and far between.

BT: But there are companies which are recognized elswhere in Europe, such as Zara Home Market. And the Paradise group is expanding. It used to manage the Hugo Boss brand, but now its stable includes Armani, Burberry and Zegna.

AL: You don’t have to look far to find fresh proposals for customers. Reinhold, which is next door to your magazine, is establishing a chain of fitness clubs in shopping centres. Four to five years ago, the entertainment laid on by centres boiled down to bowling alleys and cinemas. Today there are spas and a new generation of multiplexes, as well as those fitness clubs.

Maciej Kiełbicki, managing director of Mayland Real Estate: You also must remember you can make an individual impression by using architecture.

AL: Quite right, though the first examples of shopping centres employing more sophisticated architecture were the result of obligations imposed by the conservator of historic buildings, who decided on whether architectural features were to be maintained or restored. Manufaktura in Łódź owned by Apsys is a case in point, as is our Galeria Askana in Gorzów Wielkopolski and Stary Browar in Poznań.

BK: This illustrates a trend in which shopping centres are becoming an urban-creative factor. We generate a whole new section of the city, and not only a place to do your shopping.

MK: My personal experience is that some cities have no experience in urban planning, which is why we often show local authorities a concept for the development of the whole quarter of the city in which our project is to be sited.

z ‘Eurobuild Poland’: The concept of creating shopping facilities which are a cohesive and friendly part of a city’s tissue is basically the idea of sustainable development, which is so very fashionable at present. But does it have a real prospect of taking off in Poland? Is the declaration: “yes, our company’s operations are consistent with the concept of sustainable development” just another marketing ploy? Do you apply eco-friendly solutions, e.g. energy-saving light bulbs, to your projects?

BT: This is why corporate business responsibility has been set up. I am sure every company will soon have a special section to check whether rubbish is properly segregated and that maximum CO2 limits are not exceeded. We are all sensitive to matters concerning the natural environment, and this is the overriding factor. Neinver is a Green Building Council member and tries to manage all its investments in Europe consistent with environment-friendly principles.

MK: I feel that applying solutions consistent with sustainable development principles may establish a centre’s tangible superiority over the competition.

AL: Should a developer intend to keep a project in his portfolio it means he is more interested in applying special eco-friendly solutions.Developers who typically sell a project immediately it is finished will surely find it more difficult to find an investor ready to spend more due to the implementation of eco-friendly solutions.

MK: I simply cannot agree with that yields are not only percentage rates plus a risk element. Moreover, investment costs do not always have to be greater in the case of eco-friendly projects.

BK: In my opinion, outlays on special solutions must always be greater, for example, through obtaining energy from sustainable sources.

MK: As I see it, the situation is similar to the issue of architecture quality – the question being whether it is worth spending more on a project and getting higher rents in return?

z ‘Eurobuild Poland’: To summarize: does this mean the market has not yet matured enough to become environment and society friendly?

BT: To a large extent that is still an element of how a company is perceived and depends on an approved strategy. It is a marketing element.

AL: A tenant primarily assesses the place, the city’s potential and the amount of rent to be paid, while the fact that the elevation is of stone and that light bulbs consume little energy, and also whether the place is surrounded by greenery is of a secondary importance – although things may take a different shape in the future. If we decide to introduce such solutions, then that is our decision today and not the effect of tenants’ expectations.

MK: Again I can’t agree. We are currently commercializing three centres and in each case some of the tenants wished to discuss the quality of the centre. Information concerning rents and project visualization was insufficient. The questions were about specific technical solutions, which testified to the maturity not only of developers but also of the operators.

z ‘Eurobuild Poland’: Awareness of tenants and also investors will increase so, perhaps, a ‘sustainable project’ will become more competitive.

BK: Institutions financing projects and potential investors will first have to amend their views.

BT: Regulations and obligations covering sewage emissions, for instance, and the scope for felling trees are changing. When I travel around eastern Europe to study investment possibilities, I feel I am going back in time to the situation in Poland several years ago. For example, on the subject of cutting down a few trees. In today’s Poland, we would wonder whether it was worth doing or how to minimize the amount of vegetation. Nobody pays any attention to such details in less developed markets.

z ‘Eurobuild Poland’: What will be the impact on the market of the new legislation for large shopping centres? Is it going to clip the industry’s wings, or perhaps the opposite will be the case?

BK: A large question mark still hangs over the issue, as it was introduced only last September.

BT: Developers always bring themselves into line with new legal regulations. In my opinion, shopping centres will just have to be longer due to the new act. At the moment we are wrestling with the complexities inherent in interpreting the new regulations.

AL: Hope is still high in the industry that the law will be amended. Appeals have already been made against the new law to the Constitutional Tribunal.

MK: Every regulation causes the market to malfunction. Our law is a poor copy of the French law. The paradox, as in France, is that it benefits large companies, which are backed by substantial capital and are capable of drafting projects acceptable to provincial assemblies. Small developers, which often employ a handful of personnel, will have greater problems in achieving stable financing.

z ‘Eurobuild Poland’: So what approach are you adopting when talking to tenants? You will have trouble in setting the precise opening date of new projects when the act comes into force.

MK: When applying for a building licence in France you must have the whole property commercialized. These two processes run parallel in Poland. When a licence has been awarded for a large shopping centre, the regulations stipulate that it must open in 3 years. That leads to increased rents. But let’s not complain, since that is what our job boils down to – to connect and link everything together and then to make a profit.

z ‘Eurobuild Poland’: Construction costs are rocketing and land prices are also shooting up, so development is becoming quite an effort. So are investors, who have been frequently mentioned during this debate, continuing to queue up for Polish shopping centres? Are yields still falling? During the Expo Real fair, there was some talk about them edging ahead of those on the office market. Has the time for shopping malls arrived?

BK: Rates can still be negotiated, since the supply is falling, but I don’t think they can yet be reduced.

BT: They stand at around 5.5 – 6 pct. I think they might yet slump below 5.5 pct.

MK: We are not operating in a vacuum. The economic environment influences us substantially. Just see what is happening in the euro zone: yields are rising, which means negative trends might also emerge here, though only briefly. I recently heard about a transaction completed in Paris where the rate amounted to 3 pct. But I don’t think we can count on something like that happening here.   

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