The future is retail

The retail investment market is unique here in Poland because it is not simply concentrated in Warsaw.
If one follows the moves of major funds, one finds attractive investment products in other cities, which soon become involved in deals

The American GE Real Estate/Heitman, the Danish FORAS Holding, the German DB Real Estate and the Dutch Rodamco are major players on the Polish retail investment market. Having entered it several years ago they've had access to a wider range of products and can freely pick and choose among retail centres and shopping and hypermarket complexes.  However, though 22 properties have already been sold, either partly or entirely, the real boom is still yet to come.
"Investors who have already invested on the Polish market," says Loic de Villard of Cushman & Wakefield Healey & Baker "will move towards investments such as retail or sale and lease back in order to diversify, or because they are looking for bigger lot size investments. We will witness this in 2003 and 2004."
Investment advisors, investors and developers all agree that such investments will not only occur in Warsaw from now on, which has been the case in the office market, (with one exception). And recently it has been shown that good investment product can also be found in the regional cities.
"High quality projects in the right locations in major regional cities i.e. Kraków Poznań, Gdańsk, Wrocław, Łódź and Katowice are definitely an interesting opportunity," says Otakar Langer of ING Real Estate Investment Management Central Europe. "The long-term yields there should be more attractive for investors than with Warsaw projects, and if this is combined with a reasonable risk profile and long term sustainability of income, they are as attractive as properties in the capital city."

Return rates
Investors' closer engagement with the retail sector has not only been motivated by a need to diversify investment. A number of conditions, such as that of having a mature, competitive and versatile market, have had to be in place already.
"People know where the market stands and where good and bad developments are, what a sign of maturity is, who will perform and under-perform and how this will all affect rents. At the moment retailers are still looking for space," says Loic de Villard.
The second condition is a satisfactory level of return rates. In Loic de Villard's view, yield compression will happen in retail, but perhaps not so soon as in the office market, which is probably at a more advanced stage. So far, for a very well and centrally located shopping centre outside the capital, yields are possible which are very similar to those you get in Warsaw. "Galeria Mokotów for example, was traded at 10.25% and perhaps there will be similar deals in other cities or in Warsaw very soon. The fact that you had a yield of 11.5 % for the Casino portfolio, indicates what future trends will be more or less. We will probably see deals of 10 % and below in retail," says de Villard.

Shopping centre in pieces
A trend that can be observed on the Polish retail market is that a few investors have only acquired part of the stake in some projects. DB Real Estate and Rodamco are good examples. Will this continue?
"For an investor, a joint venture with an developer can reduce lot size and improve the risk profile, if the other party remains as co-owner in the long term. It will also provide the investor with a potential supply of other projects. I do not think it is a general trend but depends on the strategy of each particular investor. Nevertheless, it is definitely more common in retail than the office investment market," says Otakar Langer.

Manager needed
Another key issue, as far as investors are concerned, is finding reliable management for their centres, which is still hard to come by. How have those who've already invested in retail projects coped so far? Rodamco, who are going to take over Galeria Mokotów this year, have started to put their own team together, while Heitman have engaged Apsys, the previous owner of the centres they now possess.
According to Loic de Villard it all depends on the fund's strategy. If it doesn't want a big operation here it doesn't have to have a local team involved in the business.