CEE REGION As the retail sector undergoes profound changes, shopping centre investors are having to take a long hard look before deciding to acquire any asset. One that has been highly profitable up to now might generate losses in a few years. And vice versa: shopping centres that currently only generate meagre profits, but that have some hidden potential, might yet turn into a goldmine.
That’s certainly the belief of Chaim Katzman, the chairman of the board of directors and majority stakeholder of Atrium European Real Estate as well as the CEO of Gazit Globe. “At this point in time, the entire world is going for high ROI. In our sector, the retail property market, we are searching for the best options for each individual asset. Theoretically, we could acquire a shopping centre that doesn’t generate any ROI. But if we have a good idea for it, such as shaking up the tenant mix, enlarging it or even demolishing the existing building to develop a new centre with a different purpose and profile, then we can expect a return on such a project. We have the real estate – and not just financial – expertise to do this. We bought the Wars Sawa Junior department store complex in Warsaw because of its potential. Besides, it’s extraordinary property – and these are always worth buying. Such properties, however, are not put up for sale every day,” admits the founder of Gazit Globe.
He is also of the opinion that the current return is not the main indicator of an asset’s profitability. “Many investors are also looking for opportunities to buy assets in smaller cities that generate decent returns. But do they really have significant potential? We often sell properties that generate a higher return than when we originally bought them… I do think, though, that it will be more difficult to maintain the current rates of return on retail properties. On the other hand, in big and developing metropolitan areas the returns will increase as the demand grows,” believes Chaim Katzman, adding that this view was the reason for the recent transformation of the Atrium Group. “Originally we had over 150 assets, and many of these were located outside big cities. Now we only have 34 projects in our portfolio; however, the value of this portfolio has stayed more or less the same, as we continue to focus on improving the value of our assets. The trick is to be able to create added value for the assets acquired,” he insists.
Retail still very much alive
The rumours of the imminent death of brick-and-mortar stores seem to have been grossly exaggerated. Nevertheless, mediocre assets are deteriorating over time, while the good ones continue to grow in value in the eyes of their tenants and customers. “Tenants are rationalising their approach to their own stores and are now deciding that they would like to be present in only five locations instead of ten. But in these five selected centres they would like to have bigger and better shops, where their customers are guaranteed the widest range and a comprehensive shopping experience. So if you operate just those five particular centres, your position is stronger than it was before. But if you own five centres that tenants want to get out of, you have to fight for it to survive. The former strategy is the one we have adopted,” reveals Chaim Katzman.
In the long run, Atrium will focus on first choice cities as well as assets located in large metropolises with a well developed transport network. “Other locations will be put up for sale. But not immediately. We will wait patiently for a good opportunity, a good buyer and a good price. Certainly Atrium Copernicus in Toruń will not be among the assets to be sold. It was the first project that fitted into our strategy of upgrading and expanding,” insists Chaim Katzman.
When opportunity knocks
Outside Poland, Atrium also intends to focus on the Czech Republic in the long run. “We have pulled out of Hungary and Romania as we could not see any opportunities for building the portfolios we wanted there. We have also sold a few assets in Slovakia. Currently our focus is on countries with stable and rapid economic growth, whereas we have turned away from assets in less attractive regions,” reveals Chaim Katzman.
However, Atrium’s investment policy will be orientated above all on profitable opportunities. “We will be actively seeking such opportunities across Poland and the Czech Republic, but I wouldn’t like to rule anything out. If a chance arises in other countries, for sure we would consider it. We are waiting for good opportunities for purchases, but the price has never been the problem. It’s the quality and value of an asset that count most,” explains Gazit Globe’s CEO. ν
