A golden age for consumers

More than 230,000 sqm was added to Poland’s total retail stock across all formats in the first half of 2019, the highlight of which was the opening of the 78,500 sqm Galeria Młociny shopping centre in Warsaw. At present, there are no other large-scale retail projects under construction. The increasing market saturation in key metropolitan areas as well as changing shopping habits and consumer expectations are having a knock-on effect on the retail supply that will be dominated in coming years by small convenience shopping centres, retail parks and mixed-use schemes. There is a steadily growing focus on projects combining multiple functions, such as residential, retail, services, F&B, cultural, entertainment and office space. Opportunities to build such projects are plentiful – and each one, if supported by an appropriate strategy, can be unique, improve its appeal in the eyes of customers and gain a much-needed competitive edge.

Another 200,000 sqm of retail space is scheduled for opening in H2 2019, with this year’s total retail supply expected to be on a par with last year’s volume. The retail market’s growth is set to decelerate in the next few years, largely due to the dearth of large and very large projects under construction. But in the near future, new retail supply is likely to be pushed up considerably by two projects in the pipeline in Warsaw: the Góraszka shopping and entertainment centre and the Towarowa 22 mixed-use development. Strong growth is also expected in smaller cities and in the small shopping centre and retail park segments. More than 40 pct of this year’s new supply will be delivered in towns with populations below 200,000. Remodelled retail schemes are also expected to account for a significant proportion of the new supply.

At the end of H1 2019, the shopping centre vacancy rate averaged 3.6 pct for Poland’s eighteen largest markets, up by 0.5 pct compared to H2 2018. Of the eight largest metropolitan areas, the highest vacancy rates were in Łódź (6.6 pct), Poznań (5.6 pct), Kraków (4.9 pct) and the TriCity (4.7 pct). The lowest vacancy was reported in Szczecin (1 pct), Katowice (2.5 pct) and Warsaw (2.7 pct). Compared to the end of 2018, the average vacancy rate for smaller cities with 200,000–400,000 inhabitants remained unchanged at 3.2 pct. The highest vacancy rate was in Częstochowa (7.1 pct), while the lowest was in Toruń (1.2 pct). Cities with 100,000–200,000 inhabitants reported a low vacancy of 1.9 pct due to their lower shopping centre density rates.

Still attractive to the big brands

Poland is a very attractive market with a variety of retail concepts, some of which are new and original. The country is still being targeted by global brands looking for expansion opportunities. Around ten new brands entered the Polish market in the first three quarters of this year. The strong labour market, rising salaries and family allowance benefits have been having a positive effect on consumer confidence, which is likely to stimulate consumption growth in the coming months.

Prime shopping centre rents remain flat. Warsaw retains the top spot with prime rents for a 100 sqm unit in its best-in-class shopping centres at EUR 100–130 per sqm a month. Rents are lower in other major cities, around EUR 35–50 per sqm a month for similar units. Secondary shopping centres with a limited retail offer or in less successful locations are experiencing increasing downward pressure on rents. Retail market conditions are currently very favourable for tenants who are increasingly able to secure turnover-based rents. Tenants also expect other lease incentives, such as rent-free periods, shorter lease terms, fit-out contributions and a freeze on service charges. Property managers and owners of leading shopping and entertainment centres who are up to date with changing trends rarely face such challenges and thanks to the long list of tenants waiting for space they retain the upper hand in negotiations. Going forward, the market polarisation will widen, leading to marked differences in average rental rates.

All market players are recognising the growing number of benefits from both offline and online platforms becoming intertwined and complementing each other. The rise of multichannel retailing and brand new concepts is natural in a technologically advanced world and helps to increase customer loyalty.

Standing out from the crowd

The increasing market saturation, changing customer needs and expectations, and the rapid growth of e-commerce are expected to be key drivers in shaping the retail real estate sector in the near future. An optimum tenant mix with a diverse offer and unique functions is required for a shopping centre to stand out among the competition – as are architectural and fit-out upgrades that guarantee an exciting and enjoyable experience. Other critical factors include credibility, appropriate strategies for communication and deepening customer relationships, and high-quality customer service, which is the last but most important link in customer communication.

Retail is set to witness more changes in the next few years than in previous decades. With further IT advances, shopping will become easier, more convenient and more enjoyable. It is likely to be a golden age for consumers, as the retail sector continues to analyse and respond quickly by adjusting to growing consumer needs and requirements.
Małgorzata Dziubińska, associate director of advisory and research at Cushman & Wakefield

Marek Dąbrowski

food and beverage consultant in the retail agency of Cushman & Wakefield

Considering all the potential scenarios and directions of further growth for the food and beverages sector in Poland, several factors that are likely to impact this segment of the retail market should be taken into account. These in particular include generational and attitudinal changes, changing lifestyles, technological developments enabling more effective communication, climate change, as well as shifting fashions and new trends, including the recent promotion of environmental sustainability and the move towards achieving a healthy work-life balance. Looking forward, meals will almost certainly be exclusively made from fresh, healthy and wholesome ingredients, and their nutritional values will be tailored to your physical and emotional requirements, while your current needs will be monitored using specially developed smartphone apps or smartwatch chips. Drone-based food deliveries will become common, packaging will be suitable for reusing at home, and you will be able to share your culinary experiences with friends using holograms and flavours sent out over the internet. Restaurants will not only allow us to experience exotic new flavours, but the use of virtual reality immersion will be able to transport us to any place in the world! As technology develops exponentially, including the automation and robotisation of industrial and analytical processes, and as life expectancy grows, the labour market will be transformed. Some firms, although only a handful for the time being, are already switching to five-hour working days or four-day working weeks. Once these concepts have gained traction, massive numbers of people will have more time for themselves, which will give a strong boost to the F&B and entertainment segments. The correlation between such variables has become more evident since the Sunday trading ban was imposed in Poland, which, among other factors, has led to a considerable increase in capital spending on F&B, entertainment and leisure in shopping centres. Entertainment and dining are becoming on the whole as important as retail. Within the next ten years, F&B and entertainment options could make up as much as 30 pct of the space in shopping centres and, as long as the favourable macroeconomic environment continues, the dynamics of change will only accelerate in this sector.

Joanna Kłusek

a partner for retail asset services in Poland and EMEA asset services at Cushman & Wakefield

The current perception of the retail sector has been strongly influenced by such oft-repeated notions as the ‘retail apocalypse’ (imported from the US market) and that of e-commerce superseding brick-and-mortar shopping. Many have drawn parallels between the situation on US soil, where well established retailers are filing for bankruptcy or closing significant numbers of stores, and the withdrawal or closure of chains in the CEE region. So far those impacted by the US retail apocalypse have included such big names as: Diesel, Roberto Cavalli, Barneys, Sears, Topshop, Toys ‘R’ Us, Abercrombie & Fitch, Gap, Guess, Foot Locker, J.C. Penney, Macy’s, Michael Kors and Victoria’s Secret. All of these brands have either filed for bankruptcy or closed a significant number of stores due to plummeting sales and incurring considerable financial losses. In Poland, meanwhile, we have seen the market exits or store downsizing of such brands as Forever 21, Vagabond, Badura, New Look, Cubus, Tesco, the Melon Fashion Group (which includes the Zarina, Befree and Love Republic brands), Simple, Matras, Alma, MarcPol and Próchnik. Online retail has grown in strength in recent years, but offline retail has by no means stagnated. Brick-and-mortar retailers are indeed under pressure from e-commerce, off-price concepts as well as rising rents in sought-after locations. But for now brick-and-mortar brands remain the dominant sales channel, being places where consumers can go to see and try out products as well as to socialise. However, such retailers still need time to transform their business models. Customers’ shopping habits and ever-increasing expectations are forcing retailers to adapt their omnichannel strategies. Thus brands across the CEE region will keep on investing in digital solutions and penetrating online channels while continuing to optimise their in-store operations and size their brick-and-mortar portfolios appropriately. The best examples of trend- setters in this area include: Lidl, with its IT hub in Romania and www.winnicalidla.pl e-commerce website in Poland; Auchan and Carrefour with their click-and-collect services in Romania; and Żabka with its “store of the future” concept – the result of partnering with more than ten companies, including Microsoft. This latter concept focuses on streamlining the purchase process and optimising in-store operations, for example, by adjusting the prices and range of goods in individual stores for the local clientele. It also involves the use of digital signage and intelligent shelves to alert staff about products past their sell-by dates. It is also worth mentioning that the shopping centres built in the US were mainly designed purely just for shopping, whereas those in the CEE region have been developed with significant entertainment, leisure and F&B components as well as other services. Furthermore, there is app. 2 sqm of retail per head in the US, whereas in the Czech Republic there is only about 0.25 sqm per head and 0.98 sqm in Poland. As CEE retail sales continue to grow at an expected annual rate of between 4 pct and 8 pct over the next few years, further doubt is cast on the notion that a retail apocalypse is likely to be repeated here. Added to this is the fact that in countries that are or have been subject to the introduction of Sunday shopping bans, such as Hungary and Poland, contrary to expectations, retailers’ annual brick-and-mortar turnovers have still grown despite the bans. So the future of retail in the region continues to look rosy. The conclusion seems to be that the death of traditional retail has been much exaggerated, since consumers will simply keep on shopping – only in a manner that continues to evolve. The highest footfall locations, where retailers can best engage with shoppers to showcase their brands, will be the most sought after.