Trends and changes on the Polish retail market

Anna Pakulniewicz ‘Eurobuild Central & Eastern Europe’: What are the current trends on the Polish market that are set to dominate in the near future?

Renata Kusznierska, partner and head of retail agency, Cushman & Wakefield Poland: The key trend is the growing focus on the quality of existing retail properties. Around 47 pct of shopping centre space is already over ten years old. We are witnessing a large number of re-commercialisation projects and lease extensions for several million square metres. There are, of course, completely new schemes coming onto the market, but at a much slower pace than a few years back. New openings are cannibalising the existing market and snatching customers from other weaker retail schemes, but there are still some catchment areas lacking a shopping centre of their own.

Any particular examples?

Warsaw’s Białołęka district is a perfect example of underdeveloped area in terms of retail schemes. However, GTC is completing Galeria Północna, which is designed to meet the needs of the local consumer market. In some cities such as Poznań and Wrocław, saturation is high and retail schemes there will soon be put to the test by the market. I think existing malls in these cities need to get really busy to remain afloat in the coming years.

So what will happen then?

There is a lot going on in this market in terms of refurbishment and remodelling. In general, extensions and redevelopments have had a significant share in the total retail supply over the last few years. Extensions accounted for around 30 pct of the shopping centre supply in 2015. They are expected to make up around 22 pct and 15 pct of the new space coming on stream in 2016 and 2017 respectively. Some shopping centres, however, may have missed the boat for this move. The market “abhors a vacuum” and retail projects crop up sooner or later wherever there is a suitable development site in a city centre. A developer with money to spend will usually come forward to assess the city’s potential, calculate the volume of existing retail space available and construct a centre with the critical mass to make it a market leader and fend off the competition. As a result, tenants will be gaining the upper hand in lease renewals within existing retail schemes.

Is there any room for new retail projects? If so – where?

The market for new retail developments has been shrinking. Right now the important question is whether to continue building and where. It may happen that even if your site is in a prime location, your retail project may not be financially feasible or may involve significant financial risk due to leasing difficulties – because it is located in a saturated market. There indeed are several sites where owners could have developed retail projects, but have already let the moment slip by.

What is the current focus of real estate developers and owners?

This is a case-by-case question, but owners are tending to go for extensions – on which we often advise. The question is whether this makes sense and what the cost is. An extension may sometimes be the only alternative to taking on the competition or adapting to the needs of the city.

Will e-commerce reduce the amount of shop space?

The trend seems to be going in just the opposite direction. Large and strong retailers open larger stores. The downsizing of bricks-and-mortar stores may affect sectors such as home electronics and food, but so far e-commerce has a 5 pct share of the retail market. In my view, e-commerce is just another channel to reach those who go to shopping centres less often anyway.

What about new brands that have not yet entered the Polish market? Could they change the retail landscape?

The Polish market is highly attractive and we could use the entry of Forever 21 – which we worked on for two years – as a good example. Poland being outside the euro zone is sometimes a barrier. This is an obstacle for multinational retailers because they don’t know how to estimate the risk. Retailers deciding to enter this part of Europe consider Poland when they have already gained a foothold in Poland’s neighbouring countries that have the euro. The large number of existing shopping centres makes Poland a very attractive destination. Taken together, all the retail formats have a combined area of 13.5 mln sqm. When considering the Polish market, foreign retailers calculate how many stores they can open. They are not seeking organic growth in anticipation of new developments. Poland has a large retail stock and there is always some tenant rotation, so retailers can expand quickly.

What about high streets?

High streets are becoming increasingly popular, but they offer little vacant space. High street space often has a complicated legal status with claims involved. Warsaw has several large high streets that can attract retailers, but finding a 1,000 sqm unit on a single level is a challenge.

This is often the case in Warsaw, but what is the situation in other cities?

In other cities things are better; but still, there are only a few large retail units available for leasing. Retail on the high street is dominated by small stores. A growing demand has been noted from coffee and fashion chains looking for flagship locations in high streets. This is an area in which Polish cities will develop quickly over the next five years.

Royal Collection did manage to open on ul. Mokotowska in Warsaw...

Yes, it is possible – but you need to find the right way. It may take a few years to buy up adjacent tenement buildings, to get the approval of the heritage conservation authority, etc. Opening a high street store is often impossible as larger space is frequently unavailable. Then retailers turn to shopping centres instead. New brands enter the Polish market mainly through shopping centres. After a period of strong retail supply in city centres, customers are returning to the high streets. Retailers want to take full advantage of this traffic. Additionally, at the moment there are some retail destinations for premium and luxury brands under construction in the centre of Warsaw, such as Hotel Europejski.

Are we in for a slowdown?

As you can see, the retail market is changing rapidly with new trends taking off every two or three years. Some of these are very interesting: consumer behaviour is changing, customers are more demanding and expect a more professional range of goods and services. The new generation of customers is a challenge for retail property managers. On top of that, new technology is emerging. But these are changes that are taking place across the world. The Polish market has strong fundamentals: rising retail sales and increased purchasing power. We are responding to the needs of the market and predicting the new directions it is moving in, following our objective of transforming the way people work, shop and live. We are engaged with consultancy, re-commercialisation, repositioning and re-modelling for shopping centres and prestigious new projects. We are also supporting tenants in choosing the best locations and reviewing their chains of existing stores. We are also seeking to attract new brands to establish their presence here in Poland. So there’s no chance of a slowdown!