The most convenient solution

‘Eurobuild Central & Eastern Europe’: We have recently been going through a boom in both the retail park and convenience centre sectors. As a recent report published by JLL and Trei reveals, in the first six months of this year the volume of such formats in Poland grew by over 120,000 sqm. In your opinion, is this a permanent trend and how will it evolve over the next few months?

Jacek Wesołowski, managing director, Trei Real Estate Poland: According the recent ‘Retail Parks and Convenience Centres in Poland’ report by Trei and JLL, the retail park sector will continue to grow. The level of market saturation for retail parks is still relatively low, but they are currently dominating the supply growth. In H1 2022, developers completed 183,200 sqm of leasable space, 66 pct of which was in the form of retail parks and convenience centres. Market experts estimate that by the end of this year there will be another 181,000 sqm of leasable space in retail parks. This would mean another record-breaking year for the sector. The shopping centre market is already saturated and there are no attractive locations left for new developments. Tenants, on the other hand, are increasingly looking to build on their brands in retail parks. They see this format as an opportunity to reach out to new customers in smaller towns and cities that were previously inaccessible. Due to the cost increases in the first half of this year, the sector and our business temporarily slowed. The situation has now stabilised, and we are able to plan a return to our initially projected growth rate, which is 7–8 parks per year. In a joint venture with Patron Capital, we intend to build around 15–20 retail parks over the next five years. The boom in retail parks will continue apace over the next few years.

When can we expect large shopping centre investors to awaken from their slumbers? Or maybe malls will never return to the development premier league?

The Polish shopping centre market has now matured. Its saturation level has reached 258 sqm per 1,000 inhabitants, which explains the slowdown in the new supply for this sector. Locations in large urban centres, which are the natural home for this format, have already been exploited and there are no attractive ones left for new shopping centres. Currently, malls are being modernised, with improved features and tenant mixes. They are increasingly attracting the budget retailers that originally flourished in retail parks. Shoppers who want to buy clothes and other apparel, as well as those keen on a wide range of dining and entertainment options, are still keen to go to the mall. After the challenges posed by the pandemic, consumers have returned to shopping centres, which have been registering a constant improvement in performance in terms of footfall and turnover. Malls are still in the real estate premier league and remain one of the most popular formats in Poland. However, in H1 2022, this segment grew by barely 11,100 sqm gla, which came in the form of two extensions of existing centres. Although this format is expected to grow by another 64,000 sqm gla by the end of 2022, only one out of the four centres involved will be a new project. The maturity of this sector and its significant slowdown have allowed other formats to gain ground. The retail park sector is now beginning to dominate the market and experience strong growth.

It’s obvious that retail has changed a lot since the pandemic. Will the current geopolitical situation – and I’m generally referring to the war in Ukraine – also have a transformative effect on this sector?

The outbreak of the war in Ukraine has affected the entire construction sector. Limited access to building material and increased costs have become a challenge and temporarily reduced development activity. At one point, the costs became unacceptable, and so we decided to put new projects on hold. As soon as the price inflation fell to an industry-acceptable level of 20 pct compared to prices at the beginning of the year, we restarted our development programme. Now the market is more stable, and we have seen renewed development activity. However, the high construction costs are still having an impact on the retail sector. Before the outbreak of the war, our goal was to launch 7–8 new retail parks per year. This year, we’ve launched two retail parks, in Skarżysko-Kamienna and Otwock, and we have three under construction – in Kraków, Mielec and Zambrów. Next year, we aim to get back to our original expansion plans. The war has also led to increased energy price volatility. This is a challenge that we are going to have to face together with tenants. We already have the first project completed, which could help us find some solutions – Vendo Park in Skarżysko-Kamienna, which opened in August, where we have installed photovoltaic panels. This energy is used by tenants and generates additional savings.

What are the main obstacles that investors and developers of retail parks are currently having to face?

Our main obstacle remains the high construction costs. The pandemic, the outbreak of the war, as well as soaring inflation have all disrupted our sector. In fact, costs for the construction sector have risen by up to 60 pct. At the stage we felt that the rising costs were unacceptable, we put new projects on hold; but when the price increases compared to last year stabilised at 20 pct, we resumed our activities. Even now prices are still rising, so we are constantly looking for ways of generating additional savings.

Do you think that the looming recession might also have an impact on retail sales and lead to a further shift in shopping habits?

The higher costs of living will strengthen the hands of budget retailers that offer basic products at lower prices, such as food, clothing and home accessories. Consumers will be looking for cut-price products and will be able to find a wide range of these in retail parks, which have been the bedrock of growth for budget retail. Furthermore, smaller retail centres are located in smaller towns and cities, where they are often the only retail locations offering a wide range of brands. To reduce fuel costs, customers will vote with their feet and go to retail parks to fulfil their daily shopping needs. This kind of change in shopping habits is sure to drive further growth in the sector.

***

About Trei Real Estate

Trei Real Estate, which is registered in Düsseldorf, acquires, develops and manages customised and sustainable residential and retail properties. As a wholly-owned subsidiary of the Tengelmann Group, it focuses on real estate investment and development in Germany, Poland and the US within the framework of its long-term strategy. In addition to having EUR 1.4 bln in assets under management, Trei also has developments in the pipeline worth around EUR 1.8 bln. In Poland, the Czech Republic and Slovakia, the company develops and leases retail parks under the Vendo Park brand. Trei is also active on Germany’s housing market, for example, in Berlin, where it currently develops residential quarters with commercial premises, as well as student residences under the Quartillion brand. The company’s residential activities outside Germany include developments in Poland and the US.