Opening soon! in Warsaw, Prague, Budapest

Compared to other capitals in the CEE region, Warsaw’s retail market still has enormous growth potential. Developers have already sensed this and (more importantly) are putting plans into action to build even more. In Prague, where the market is saturated, most of the development activity will be in the form of modernisation. While in Hungary only the strongest investors have been left standing – and those who haven’t been scared off by government restrictions.

Vigour on the Vistula
The Polish capital’s retail market is very much one that has yet to fully realise its potential. Out of the eight largest Polish cities, Warsaw has one of the lowest retail saturation levels – 444 sqm per 1,000 inhabitants. Only Szczecin and the Katowice conurbation are less saturated, while Wrocław has 721 sqm of retail space per 1,000 inhabitants. The capital city, therefore, remains very attractive for retail chains. Warsaw shopping centres now feature such international brands as Hollister and Michael Kors (Galeria Mokotów), Guess and Simone Perele (Złote Tarasy), Camper (Arkadia) and Luis Vuitton (Vitkac). Vacancies only constitute 2 pct of the total area. So Warsaw has all the attributes needed to become a retail mecca. The standard of living of its inhabitants, their earnings and opportunities for finding work, are also better than in the rest of the country. In June the unemployment rate in the province of Masovia (which contains Warsaw and areas within in its orbit) was 11.1 pct, whereas in Warmia-Masuria this amounted to 20.2 pct. “The purchasing power of Warsaw’s citizens is still the highest in the country. Salaries remain at a level of almost EUR 9,300 per person per year – 61 pct higher than the national average,” says Agnieszka Tarajko-Bąk, a senior market analyst at Jones Lang LaSalle. According to economists,
Poland’s economy is also improving slightly because Poles have started buying a little more. The best malls in Warsaw are not faced with the spectre of any imminent fall in rent levels. According to JLL’s data, the rates for prime units (fashion boutiques of app. 100 sqm located in the best shopping centres) have increased by about 5 pct since Q1 last year. Now monthly rents have reached EUR 80–95 per sqm and could increase even further in the future. Such growth potential is simply waiting to be tapped. Admittedly, it is only the best centres in the city that are attracting all the customers and tenants; but this is not preventing other projects from finding places for themselves. The centres that were opened in Warsaw and its immediate area this year include the second stage of Auchan Łomianki (a total of 32,500 sqm), the Factory Annopol outlet centre and Galeria Podkowa in Podkowa Leśna (8,000 sqm). Meanwhile, Plac Unii Lubelskiej (15,500 sqm) is about to open its doors – in October.

Rising from the desert
A few retail deserts can still be found on the map of Warsaw. One example is the rapidly developing Miasteczko Wilanów district, which is now home to a growing number of young and well-paid Varsovians. Developers have already announced shopping centre projects that could satisfy the consumer appetite of Wilanów’s residents. Projects such as Globe Trade Centre’s Galeria Wilanów or Ghelamco Poland’s Plac Vogla are among the investments planned for the next few years. Galeria Wilanów will offer 77,000 sqm of retail space,while Plac Vogla will offer 11,000 sqm. Meanwhile, the mixed-use Royal Wilanów project of Capital Park will add another 7,000 sqm of leasable space. GTC is also planning to build a mall in Białołęka district (60,000 sqm) – an area that suffers from an acute shortage of retail facilities. The situation is similar in Bielany, where Coimpex is planning to build 67,000 sqm of retail in its Galeria Młociny project, the construction of which should get underway this year. In 2015 the residents of Wawer will finally be able to welcome a new project, this time in the form of a convenience centre: RE Project Development has been preparing its Ferio Wawer (12,500 sqm) project, which is to include around 40–50 shops. Some retail related activity is also taking place in Wola district. After purchasing Wola Park, Inter IKEA Centre Group Poland is thinking about enlarging the mall; in the same district Mayland Real Estate is also considering a complete modernisation of Fort Wola. Closer to the city centre, a change of strategy is being implemented for the city’s Klif centre, involving a radical overhaul of its tenant mix. The second upmarket Collection of Style boutique in Warsaw is to be opened in the centre, bringing a measure of freshness to the normally predictable tenant mix in the capital’s malls. Meanwhile, the situation looks rather interesting in Ursynów district. On ul. Puławska (close to ul. Płaskowickiej), Valad Europe is planning the complete redevelopment of the CH Ursynówcentre, which currently houses such tenants as Real, RTV Euro AGD, Obi and Go Sport. An Auchan hypermarket is to take the place of the Real store in the upgraded facility. The entire extension work will cost EUR 230 mln, but details of the project have not been disclosed at this stage. A local zoning plan is needed in order to start the work, but none exists for this area. Therefore the project could take a few years; however, it still provides an excellent example of how important Warsaw is for developers and how many retail possibilities there are in the city. Tesco, the owner of a hypermarket in Kabaty district, was planning to launch a similar project. The facility could be extended by over 30,000 sqm, but the plans have been put on the back-burner for now. Some activity is also taking place on the right bank of the Vistula. Here Valad Europe (in cooperation with CBRE Global Investors) is thinking about extending King Cross Praga on ul. Jubilerska. The funds needed for this project amount to EUR 140 mln. Valad Europe is the owner of the hypermarket while CBRE Global Investors owns the gallery. This would provide some local competition to the Promenada shopping centre, which is also to be extended by 20,000 sqm, but the owner Atrium European Real Estate has not made any final decisions on the matter so far. Paged’s Okęcie retail park is also being planned near the city’s airport. A retail area of 8,700 sqm is to be built for seven tenants in an investment of PLN 40 mln. Ancona’s Sky Fashion project (17,000 sqm) on ul. Mineralna is also in the pipeline. And what about the outskirts? Here Valad Europe takes centre stage once again as another property from its Polish Retail Fund is to undergo some changes. The Janki shopping centre will be extended by 20,000 sqm to house 83 units. The project, which is to cost EUR 60 mln, is aimed at introducing large-format fashion tenants to the facility. Negotiations with tenants are already in progress and the feedback is said to have been very good.
The large number of retail projects in Warsaw is hardly surprising. This is the strongest and the most attractive market – for investors, developers and tenants. It is also a market that has been resistant to the economic turbulence of recent years, something which cannot be said of the smaller Polish cities and towns, where the closure of one major employer sends the local retail market into turmoil. So developers are likely to remain focused on the fatter wallets of Varsovians.

Shopping over the Carpathians
The situation in Warsaw, however, is far from typical in the CEE region. Poland has been the investors’ darling since the credit crunch, as the only EU economy not to fall in recession; and though its GDP now looks far less impressive, much of the rest of the region has still to start recovering from recession. A more typical city in the region is Prague. “The retail stock in Prague currently stands at 994,000 sqm of modern space, with shopping centres accounting for almost 85 pct of the total. The shopping centre density in Prague reaches 669 sqm per 1,000 inhabitants and the combined retail space density is 797 sqm per 1,000 inhabitants,” says Jana Svobodová,
a research analyst at Jones Lang LaSalle. “Prague is less saturated than, for example, Brno, Ostrava, Plzeň or Liberec, which are the biggest regional cities in the Czech Republic. The highest density of modern retail space is in Liberec, where it comes to 1,484 sqm per 1,000 inhabitants, which is significantly higher than in other Czech cities. On the other hand, Prague includes both the city and its immediate region. From this point of view, Prague is the region with the highest density of shopping centres and retail parks per capita.”
Currently there are thirty shopping centres in the city and three under construction (OC Lužiny by Urban Developers and Investors with 16,000 sqm, OC Krakov by S Group with 13,800 sqm and Quadrio by CPI Group with app. 8,500 sqm of retail space). Jones Lang LaSalle declines to give precise figures for the vacancy rates, but estimates them to be between 3.5–4.5 pct across the city with prime rents at EUR 100 per sqm per month. In Prague “the development plans for new shopping centres are extensive, however the market
is already quite saturated and therefore there is only a limited amount of space for new retail schemes,” explains Beatrice Mouton, the head of the CEE retail agency at Jones Lang LaSalle.
She adds that “the major growth over the following few years is expected to consist mainly of extensions to existing shopping centres and new smaller retail schemes. Former railway sites have been identified as possible development areas for large retail projects over the long term.” Currently there are two extensions underway in the country, according to Jana Svobodová: the extension of Olympia Brno (85,000 sqm gla, owned by a joint venture of ECE Projektmanagement andRockspring) by around 2,500 sqm, as well as Avion Shopping Park Ostrava (owned by Inter IKEA Center Group), which is to be extended by 3,000 sqm to 109,000 sqm.

Beating the ban
The market conditions in Prague could be described as challenging, but in Budapest they are even more so. In effect there are three developers active on the market. Futureal is planning its Etele Square project, which should offer 40,000 sqm gla, while ECE Projektmanagement has just received permission from the government to go ahead with its planned Aquincum Center, which is to offer 55,000 sqm gla, and Echo Investment has also received an exemption to the capital’s shopping centre development restrictions – or ‘plaza ban’ – to build Mundo Center (37,000 sqm). Since the beginning of 2012 all retail projects above 300 sqm have had to receive the approval of the government before work can begin. Erika Pál, the head of retail for Jones Lang LaSalle in Hungary, regards the effects of the law on shopping centre development as negligible. “The plaza ban was established mainly to curb the dominance of international discount food and hypermarket operators. It does not really effect shopping centre development. However, this new regulation and the procedure for receiving permission has made international companies distrustful,” she claims. Nonetheless, Christoph Augustin, the managing director of ECE Projektmanagement in Budapest, commenting on the Aquincum project feels that: “It was important to receive an exemption to the so called ‘plaza ban’. Now we can proceed to work on the further development of this excellent project. The target is to have everything prepared so that the development can be done once the market has recovered.” When asked how ECE could guarantee the success of its projects on such a difficult market, he replies: “First of all it is important to have the right location, especially in these times. And for such a location you need a tailor-made product, including an outstanding design and the perfect branch and tenant mix to make it really attractive for the customers. We are also monitoring the wider market situation very carefully and will start a development only if all the parameters are met.” Budapest has around 443 sqm per 1,000 inhabitants, with only one city in Hungary offering more – Győr with 562 sqm per 1,000 inhabitants. As for rent levels, Erika Pál believes that: “Everyone is trying to survive, therefore landlords are more flexible and cooperative. They could offer discounts for a short period for retailers who are really struggling, but this only works when the retailer has been a tenant for a long time, is trustworthy and adds value to the shopping centre. It is also important for the landlord to see the retailer’s business plan for recovery and that after six to twelve months the original rent level can be restored.” However, prime rents in Budapest are around EUR 1,020 per sqm per annum and little immediate improvement is expected in the near future: “I definitely wouldn’t want to predict an increase in average rents over the next two years,” declares Erika Pál.

Three cities in numbers
Warsaw
The greater Warsaw area (metropolitan Warsaw and surrounding towns) has 1.6 mln sqm of leasable space in 45 existing retail facilities, which is 14 pct of the total stock in the country. Shopping centres account for around 1.1 mln sqm of this, while retail parks make up 270,000 sqm, with the remainder in stand-alone retail warehouses (186,000 sqm) and outlet centres 50,000 sqm.

Prague
In Prague the retail stock totals 994,000 sqm of leasable space. There are 30 existing shopping centres in the city with about 845,000 sqm, with the remainder divided among the other formats. Retail saturation has reached 797 sqm per thousand inhabitants. Three centres are currently under construction.

Budapest
Budapest has a rather low saturation of retail space: 443 sqm per thousand inhabitants. In the city there is around 1.2 mln sqm of retail space, of which 771,500 sqm is in shopping centres.
Source: Jones Lang LaSalle