Time well spent

Aneta Cichla, ‘Eurobuild CEE’: When we last spoke a year ago, you mentioned that the company intends to expand its portfolio by purchasing shopping centres. What has changed since then?

Leszek Sikora, managing director, ECE Projektmanagement Polska: We are constantly working on expanding our management portfolio or for acquisitions by the ECE European Prime Shopping Centre Funds and. In both cases, this is currently not so easy. There is a good overall economic situation and retail properties are expensive. Furthermore, we have fairly clear expectations when it comes to aspects such as the market position or the terms of lease agreements. We pay attention to such issues as the common costs and optimising centres in this respect. We take a critical look at the consequences of the structure of lease agreements and, eventually, the financial results. It can turn out that even the established centres that we would like to buy are not suitable due to their internal structure. In such cases we decide to not make more offensive offers than our competitors. We choose properties very carefully, avoiding those that may cause difficulties in the future. Currently we are looking carefully at a number of malls, but I can’t reveal which ones because of the ongoing negotiations. Their results will determine whether they can be added to our portfolio. I also can’t see any possibility for the construction of new centres by our company. Like in other European countries the market is largely saturated and I can’t think of a large Polish city that now needs a new 50,000 sqm or so shopping centre. These are the centres that ECE builds and nothing has changed in this respect.

So what sort of lease contracts do you prefer?

There is a certain standard on the market when it comes to signing contracts and most centres operate according to it. These rules have changed over the years and therefore not every price that sellers expect for their centres is acceptable. The tenants’ reluctance when it comes to participating in the common costs of the centre should be taken into account in the purchase price, or in the investment costs if the developer is building a centre from scratch. These expenses are borne by the property owner. You can’t turn a blind eye to it.

There have recently been many purchases of shopping centres in Poland. What has been prompting investors to buy malls here?

Investors believe that shopping centres are still a safe and stable investment, and their future is not under any threat if they continue to further develop and change. This is a strong stimulus because the purchase of a retail facility is a considerable expense, around EUR 150–200 mln. So prices are high and the gap in the valuation of Polish properties compared to those in the west of Europe is getting smaller. This is very good news because it shows that the investors’ expectations for the future of the Polish economy are positive. If we treat the recently introduced restrictions on retail as a trend, the market has been reacting very well to these changes. The new regulations will not kill off the trade in shopping centres, although we are seeing less development activity. After the opening of Posnania in 2016 and Galeria Północna and Wroclavia, there are not many large centres in the pipeline. I think, however, that investors recognise that the centres that have recently been opened are very modern and are meeting the expectations of consumers, while the older ones are well located and have the potential to be adapted perfectly to their requirements in the future.

Even centres being closed shopping on Sundays and such burdens as building value tax are not scaring off investors?

That’s right. This all stems from the healthy economic situation in Poland. These issues are not so bad that they are discouraging investors. I only hope that any further restrictions imposed on this sector do not coincide with a correction and a slowdown of the economy and the consumption growth Poland has enjoyed for many quarters. If this happens, it may turn out that we miss being able to shop on Sunday, when people have the time, the willingness and the reason to go to the shopping centre. We are closely monitoring all of this, wondering how these potentially adverse changes will affect the functioning of malls. However, we would like the Sunday trade ban to be relaxed and thus not encourage consumers to switch to digital channels.

What is your strategy for projects owned by ECE and what do your other activities on the Polish market currently consist in?

We have recently taken on a lot of work in centres that have operated on the market for many – sometimes a dozen – years now. They are being refurbished to bring them up to the latest standards and current expectations of customers as well as those of the tenants, who are also constantly improving the layouts of their stores. This involves many aspects such as new seating areas, modern lighting, an upgrade of colors and design as well as the renovation of lobby areas, corridors and food courts, as is the case with Silesia City Center. Work has also started at Galeria Łódzka in Łódź, where the food court will be adjusted to the latest trends in design. Although this space will not be extended, it will be more functional and attractive. This is the beginning of work on a more extensive modernisation of this building. We also focus on raising the standards and services offer of our existing centres. The changes are progressing very quickly and there are to be no compromises – we have to deliver the best quality.

Which of the current market trends will have a real impact on the operation of shopping centres?

I think that the sector will strengthen its focus on combining gastronomy with entertainment to complement the classic retail and services offer. This is the result of the ever-increasing saturation of shopping centres with various types of products and services, which is encouraging people to seek a deeper and more distinctive shopping experience. So the key thing is to further improve the quality of the time spent in a mall. A sophisticated restaurant offer has now started to emerge. Although this is something that has not been associated with such centres so far, there have been significant changes in this respect. The growing prosperity of the population, the low unemployment rate and the greater productivity in the regions – all this means that people living in the largest conurbations now have even greater aspirations. We just have to adapt and understand that most consumers are not only looking for a comfortable place to shop in, but they are focused on having an interesting experience. We have been extensively involved in the F&B offer for several years and have now launched our ‘We Love Food’ scheme, which involves a group of specialists advising us on the design and modernisation of the food areas in our centres. Depending on the location, it could lead to the allocation of larger proportions of space to these tenants, even though it could turn out from the hard data that doing this is less effective per sqm. However, it has to be borne in mind that having such areas is necessary in order to emphasise the quality of what’s available in the shopping centre.

So you are focusing on the customer experience as you improve your centres?

Yes, we are. Although these are activities that do not always directly translate into tangible turnover. Often these are multi-million investments that will not directly result in higher rents or a higher price when selling the building. However, we believe that such activities are necessary to continue turning shopping centers into third places. We have been gradually introducing our ‘At Your Service’ programme over the last few years, which entails a series of measures aimed at improving the quality of our shopping centres. Selected aspects of these programmes have also been introduced in Poland, such as furnishing the rest and common areas with the necessary fittings, for example, including chargers for the various types of devices and USB sockets. This has to be of a high quality. Aesthetic lighting and acoustic elements also have to be fitted to quieten the interior of the building, so that the customer doesn’t feel like they are in a warehouse. The ‘At Your Service’ programme which will also be implemented in Poland also involves renovating the toilets and the corridors leading to them, replacing the information systems in shopping centres and introducing modern wayfinding systems. This also requires rearranging the layout of the car parks and the areas located near them. Entering the centre, parking and exiting it have to be convenient and efficient. Altogether it’s a fairly expensive undertaking, but we are introducing it gradually, in centres that are being refurbished. Each element that is improved forms part of a larger whole and ultimately has a significant impact on how the mall is perceived by its customers. This effect is being supported through ECE’s various innovations. A special team has been set up to invent, design and introduce new systems in many of the areas of retail buildings aimed at making the mall friendlier. In this way we hope to continue to revive our shopping centres and prepare them for the dynamic times that lie ahead of us. ν