Controlled boom

Piotr Kaszyński, partner and head of the retail department at Cushman & Wakefield, insists that the Polish large-scale retail market still has great potential. It is currently being fuelled by money flowing in from investment funds

Radosław Górecki, 'Eurobuild CEE': Institutional investors seem to have gone mad over shopping centres recently.
Piotr Kaszyński, partner and head of the retail department at Cushman & Wakefield:
Indeed. We can see that the investment market has become the main flywheel of the retail property sector. We are witnessing a substantial revival. There is a lot of capital on the market and funds are actively looking for interesting projects. And by 'interesting', I mean large, dominant, regional shopping centres. This is very good news for developers. Capital is being freed up thanks to these investment transactions and can be used to launch new projects. And this is crucial for the development of this market.

You say that there is a lot of capital available. This is interesting since the global economic situation is, to put it mildly, unstable. We are waiting for the bankruptcy of Greece, while more countries are having their credit ratings lowered. So where is this capital coming from?
We need to remember that the crisis is mainly concerned with national budgets. Countries do not have the possibility of incurring more debts or refinancing the loans taken. Meanwhile, there is no crisis in corporations. The current situation is often compared to the crisis of the 1930s. The difference being that at that time we were dealing with problems in private corporations, whereas now we have crises in national economies. The truth is that European and American corporations have not had such huge capital reserves since the 1930s. These companies are rich and have cash at their disposal. It is governments that are on the verge of bankruptcy. Rich companies are now looking for opportunities to invest in safe projects.

Are you trying to say that retail developments are such safe projects?
Real estate guarantees stability. Property transactions are relatively speaking not very liquid. However, they are safe. There are a lot of companies that want to buy stable projects nowadays.

And do markets such as Poland, the Czech Republic and other CEE countries guarantee stability?
That's right. This is mainly true of Poland, which does not have a lot debt relatively speaking and is continuously developing. Our chief asset is our geographical location. We also have a qualified and motivated workforce that is prepared to do business in a free economy. This has led a lot of investors buying properties here to view our market as one which has not overheated and is consequently highly promising. And this is why there have been so many transactions recently.

Are you not afraid that the bankruptcy of Greece will be a kind of cold shower? Investors will get scared and everything will come grinding to a halt, just like after the bankruptcy of Lehman Brothers.
First of all, I do not believe in the inevitable bankruptcy of Greece. Of course there is the problem of how to service Greek debts, but this is mainly a problem for the banks that have lent money to Greece. I believe that this problem will be solved sooner or later. In my opinion the situation in Italy, Spain and Portugal is a bigger threat. It should be noted that Western Europe had been living on credit. However, we should also recognise that the money has not simply been frittered away. Thanks to it, Western Europe has educated its societies, built its infrastructure and can successfully compete with other economies nowadays. That is why I would not like to focus on the worst-case scenario. We are not in any danger of a great financial crash.

So where will the cash come from?
Mainly from Western European funds and corporations, as well as from the United States and the Middle East. Interestingly, there is no demand from Asia. Asian funds are busy with their own markets, which have been developing dynamically. In my opinion they will not be interested in investing in our region for a long time.

I understand that this huge interest in shopping centres in the CEE region is being reflected by an increase in their value.
Indeed. You could say that the end of 2011 is a sellers' market. As a rule there are four or five potential buyers for each centre sold. And I mean serious players who are able to close deals successfully. This is also where the answer lies to the question whether the Polish retail market is already saturated.

So is it?
Each particular city should be analysed separately here. However, generally speaking, we can safely say that the Polish market is still not saturated. It continues to offer great possibilities. There is still a lot of space for new, bigger facilities. Investors and developers who currently have cash at their disposal are sometimes able to build a large number of attractive projects. And buyers are starting to have problems finding attractive properties as the best shopping centres are not being put up for sale.

Why is this so? Such demand should make it possible to get a good price.
This results from the fact that owners, I mean primarily funds, are not having problems with vacancy. Besides, the administrative process making it possible to start more projects takes a very long time. So it is relatively easy to see the threats a given facility will have to face from the competition. Consequently there is no reason to get rid of good shopping centres. After all, they guarantee stable revenue.

So on the one hand we have a shopping spree and on the other there are tenants' protests in a lot of shopping centres. Why?
Some tenants are not able to generate an adequate turnover. To put it bluntly, they cannot afford to pay their rents. I believe that developers and shopping centre owners are quite flexible when it comes to negotiations. Protests are most often happening in centres which had been built with credit, because in such cases each decrease in rent has to be agreed with the bank. And banks' approaches vary. They will often not accept this. And then a problem arises. If the shopping centre owner does not manage to help the tenants in a way that would make it possible for them to find the money for the rent, they might just leave. However, the phenomenon is not so significant.

There are a few shopping centres across the CEE region that have gone bankrupt. Are there also such projects in Poland?
Bankruptcies of shopping centres are nothing unusual. It is a normal process and will probably also be the case in Poland in the future. But so far I cannot see this happening to such projects. Our market did not overheat enough for that. The banking sector, fortunately, did not have a chance to lend money for speculative projects. And nowadays it does not provide such possibilities, either. In order to obtain financing you need to make your own contribution of at least 30 pct and have preliminary contracts signed for 50-60 pct of the area. As time goes by, the competition will of course grow, which will result in smaller and weaker projects losing customers and tenants.

And what will happen then? Demolition? A change in the qualification of the facility?
It all depends on the location and time. If the local site development conditions make it possible to build apartments or offices instead of a shopping centre and there is a demand for them in a given location, then this will probably be the investor's decision. Besides, this trend has already started. Relatively new facilities are more frequently being demolished. Buildings finished 10 or 15 years ago are being dismantled. This is simply the way things are.

All about retail
Piotr Kaszyński - partner and head of the retail department at Cushman & Wakefield in Poland. Piotr and his team have contributed to many retail developments in Poland, e.g. Złote Tarasy, Galeria Mokotów, Promenada (Warsaw), Stary Browar and Galeria Malta (Poznań), Galeria Kazimierz (Kraków), and the IKEA chain of retail parks. Having graduated from Florida Atlantic University, he joined Cushman & Wakefield in 1998. Currently, he and his team are involved in the following projects: Galeria Katowicka in Katowice, Galeria Kabaty in Warsaw, Felicity in Lublin and Millenium Hall in Rzeszów. He has also represented tenants in their expansion on the Polish market (e.g. TK Maxx).