A time of humility, a time of truth

Can the future of the entire cee retail market be calculated from the size of Santa’s sack of presents? The industry clearly faces a difficult year ahead of it, but making accurate forecasts is a dangerous business

Ewa Andrzejewska

In the opinion of Renata Kusznierska, DTZ’s agency director for Central Europe: “The first three months of 2009 will be the most significant for the retail sector, as the health of retail space is being evaluated. When holiday period sales are summarized, any slowdown will become evident.” But she adds, with hindsight, that 2008 was a good one as regards the number of delivered projects, although some have been postponed until later this year. A huge number of champagne corks were popped at opening ceremonies in 2008 as 800,000 sqm of new space was delivered, an amount similar to 2007; however, in that year analysts had been predicting that as much as 1.3 mln sqm of new space would come online in 2008. So is 2009 set to be a year of despondency, or is it even possible that a new record could be established? DTZ is estimating that Polish developers will complete the construction of 1.1 mln sqm of retail space in 2009 – after recently reducing an earlier estimate from 1.5 mln sqm.

Romania which was second on last year’s ranking, with 380,000 sqm of new space, and there is a will from developers to improve the country’s performance this year as well, as they are planning to deliver 530,000 sqm to the market. However, this would mean being out-performed by the Czech Republic, where the openings of centres with a combined area of 540,000 sqm are planned. The country ended 2008 with a total of around 310,000 sqm of new retail space.

Small is still beautiful

Developers operating in Poland continue to focus on medium-sized and smaller cities, with 72 pct of developments planned for 2009 being situated outside the eight largest conurbations. But new projects are also being prepared in the big cities, for example TriGranit’s Bonarka City Center (101,000 sqm) in Kraków, Port Łódź in Łódź by Sweden’s Inter IKEA (77,000 sqm) and Neinver’s Galeria Malta (52,000 sqm retail area) in Poznań.

Renata Kusznierska is confident in the belief that: “The next few years will see far-reaching transformations in existing shopping centres. It will be a time of reconstruction and challenges connected with creating new images for many malls, particularly those around 10 years old. DTZ’s portfolio includes eight projects awaiting re-commercialization and even twofold extensions. Such undertakings offer great opportunities to new tenants in centres that have managed to attract a number of loyal customers. At such a painful time for the economy, a good choice of the district to develop a shopping centre in, which is convenient for customers, is of enormous importance. Such assessments can be safely made even as long as five years after tenancy contracts usually expire. The care taken for a centre’s image and building its brand is important when difficult times arise.” DTZ is also acting as consultant for the extension of Galeria Olimp in Lublin. While Kielce-based developer Echo Investment has begun a significant project to transform an older mall into a “premier league” centre in its home city: Galeria Echo is to be enlarged by around 26,000 sqm to 66,000 sqm. The project includes creating four shopping storeys and a multi-storey car park for 1,500 vehicles. Goods will be available from 300 retail outlets once the mall is opened in 2010. Also being enlarged are the M1 centres, which were acquired several years ago by Apollo-Rida Poland from the Metro Group. The investor last year opened centres, with much fanfare, in Kielce, Radom and Czeladź, among other cities. 
  The board of Mayland Real Estate had a few opportunities to celebrate in 2008 when they opened the first three of their shopping centres in Poland, and have already announced that they intend to enlarge the Pogoria centre, which was built on the site of a former steel mill in Dąbrowa Górnicza. The Jantar centre in Słupsk will also be expanded by 27,000 sqm, while Opole’s Karolinka will feature, in the near future, an interior furnishings centre. DTZ expects the demand for retail space to grow from international and domestic chains, including those that are just entering the market. Tenants seem to be shrugging off all the muttering about being on the precipice of an economic crisis, and instead are announcing expansion plans, although they will now surely be taking a much closer look at projects under construction or being re-commercialized. Those brands which have declared plans to expand onto the Polish market include Halfords, the British retailer of car and bicycle accessories, the TK Maxx and Primark clothing chains, and the Heatons clothes and sportswear stores. Analysts are now pointing to a clear and substantial interest in the Polish market by top-shelf brands. Renata Kusznierska is of the view that: “Luxury chooses the largest cities, both in well-known shopping centres and along the more popular high streets.”

When the shopping centre market in city centres becomes saturated, a retail chain will try to find another market niche, which is when the high-quality outlets on the high streets of our cities come into being. Developers have already recognized the potential of high-streets and have now begun or are planning to redevelop existing low-class department stores and tenements into modern shopping space. Centrum Investment & Developments’ activities provide one example of this trend – the Cedet department store in Warsaw; another is DePtak an investment by the Polish-Austrian GN Group in Poznań.

Ewa Derlatka-Chilewicz, a senior market analyst at DTZ, gives us this summary of the situation: “There is still room in Poland for concepts which are completely unknown here e.g. department stores. This is a format in which one tenant occupies an entire building. i.e. from 3,500 sqm to 10,000 sqm. Some companies at present entering the Polish market are thinking of setting up multi-level outlets, for instance Primark, as are companies already present in Poland, such as Peek&Cloppenburg and Royal Collection of Poland. Tenants are still planning to expand operations in Poland and have no intention of reviewing them.” Renata Kusznierska adds that when retail is located in historic old-town areas, unusual ventures are often born, that are both original and architecturally distinguished. One of these is the construction of a large area of streets in the very heart of Lublin, planned to start in 2011. The project, which has been called Alchemia and mainly involves retail development, is a plan to revitalize the old-town sector together with neighbouring tenement buildings. 

Time for natural selection

DTZ’s experts are emphasizing that the rents demanded in Poland are at a healthy level, with tenants not being forced to make excessive payments for shopping centre outlets. The rule is that rents should not exceed 15 pct of an owner’s revenue, while in Poland the figure stands at 5-8 pct, falling as low as even 1.5 pct in some cases. Tenants have also been able to earn more by paying rents in euros, since the value of the currency against the Polish zloty has gradually slumped. Such imbalances should be corrected during a crisis period. Renata Kusznierska puts it this way: “Energetic, well-established brands with a durable image will survive and consolidate their position, while ill-judged concepts will fall by the wayside. No spectacular bankruptcies are expected but an exchange and rotation of tenants seems inevitable.”

Educating toddlers

The entertainment and recreation on offer in shopping centres is gaining in significance with each passing year. The ‘kids play’ sector is a new trend which is now gathering interest. Up to now, the small poorly-developed formats of small play rooms and free-standing automatic toys tending to dominate these facilities. However, Ewa Derlatka-Chilewicz now points out that other features are emerging: “A number of chains are gradually entering the scene, such as the Danish Capella Play, which has opened its first facility in the Gliwice Forum shopping centre. This is not only just a standard playroom, but comes together with a toyshop and a restaurant with internet access. I am quite sure many more entertainment concepts will appear in shopping centres, stretching far beyond bowling alleys or the “storage room for children” approach. And they are sure to be substantial in scale, from between 800 and 2,000 sqm.”

Catering for children is an important aspect of Ukrainian shopping centres. Shopping excursions accompanied by children are a hugely popular way of spending time in the country. Ewa Derlatka-Chilewicz adds that: “Ukrainian play areas are more than 1,000 sqm in size, whereas Capella Play zones are generally around 600 sqm.”

Financial stumbling block

Postponements in planning and implementing retail projects in Poland were the outcome of the several months that the WOH act was in force prohibiting the development of large-scale shopping space. Now that this legal barrier has been removed, its the turn of the credit crunch to put the kibosh on retail development. Renata Kusznierska explains why: “Banks now require investors to provide at least 30 pct in terms of down payments, and also to give proof of 60 to 70 pct commercialization as early as the planning stage. The investor is under much greater time pressure, the