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Aneta Cichla, ‘Eurobuild CEE’: How do you see Poland in retail terms compared to other European countries and the rest of the Central and Eastern European region?
Leszek Sikora, managing director, ECE Projektmanagement Polska: Perhaps I will start with the positive factors. Poland has been characterised by sales growth of a few per cent in its shopping centres for a number of years, which is not typical for Europe as a whole. And it is the better centres that are strengthening their positions. We are also seeing growth in the Czech Republic and Hungary. Meanwhile, we have the opposite trend on the richest European markets. In Poland this is a result of economic growth and a constantly rising disposable income, among other factors. We have been pleasantly surprised by this. As far as the other factors are concerned, things are not that rosy. In particular, the legal environment has become unstable over the last few months. This includes proposals for new regulations that would change the rules in the middle of the game and that would affect the owners of shopping centres, our investors. They are constantly hearing of possible changes to these plans and this makes their position even more uncertain. I am talking about bills to tax the owners of large malls and the proposals to ban Sunday trading. I do not want to say whether all this is a good or a bad thing. However, it certainly affects an investor’s sense of stability and security on our market. This is an inconvenient situation because such an investor will tend to choose a more stable market when making their next decision. At this stage in the economic development and affluence of Polish society we have reached maximum saturation when it comes to retail space. This has led us to conclude that the time has come for existing centres to consolidate. The market will favour those that have been successful and it will also become clear which ones will have to reformat. The time of rapid market growth and constructing subsequent projects has now come to an end.
Does this mean that ECE Projektmanagement will not be building new centres in Poland?
We are not planning any new centres at this time. If such an opportunity arises, we will analyse it in detail. However, at this time I cannot see any more room for centres in the format we build. We are more interested in acquiring existing malls. We are active in every opportunity of this kind, entering bids for the centres we are interested in. The healthy situation on the market I mentioned earlier means that sellers’ price expectations are currently very high. In the last few months we have not managed to add any new centres to our portfolio but Poland remains a key market for capital allocations of the ECE Fund.
How much can the company invest in the purchase of projects?
The issue is not the availability of capital but the availability of the kind of attractive centres our fund would be interested in buying. There are only a few such products in this country. Poland is very attractive and investors have entered this market just because they know about the same indexes that excite us. So the competition is strong. ECE Fund II, which is still in the investment stage at this time, has a few hundred million euros left to spend, which represents a few large malls in big cities, but this money is not only for the Polish market, of course. If we managed to invest it in Poland, I would be more than happy as it also means the growth of ECE’s operations as centre manager. Other players are also interested in the same products as us, that is, in city-centre malls that dominate their local market. I am not just talking about the largest cities, but also those with up to 200,000 inhabitants – they are also enjoying a great deal of interest and attracting high transaction prices.
Are you looking to buy or to sell?
I don’t think that any of our centres will be up for sale in the next few years.
What does a saturated market mean for a developer and what does it mean for a manager?
For us it means that beside focusing and concentrating on acquiring and developing new centres ECE must be oriented towards improving our existing portfolio. Considering the lack of any justification for building other centres, we have to concentrate on our project, development and management activities being best employed to enhance our existing centres. Our oldest centres are more than fifteen years old. They still benefit from being located in the best spots in their cities and towns, but of course they have aged and thus require renovation, refurbishment and extension. This is why the attention of a developer that also manages a portfolio of shopping centres should be focused on the extension, renewal and restructuring of its existing portfolio in order to exploit all the advantages of such locations and to propose something completely different for these centres. We are analysing such changes, for example, for Galeria Łódzka in Łódź.
You’re working on the modernisation of this mall, as well as Galeria Bałtycka in Gdańsk and Silesia City Center in Katowice. What stages are these projects at?
In the case of Galeria Bałtycka, we are still applying for the final permits necessary for the execution of the project. And not just for extending the building by a leasable area of 16,000 sqm, but, prior to it, also for relocating an underground stream that flows through the site. The Łódź centre will be restructured, both indoors and partly outdoors to raise the standard of the finishing and functionality of the mall to current first-class standards. Right now we are at the feasibility study stage, preparing analyses and a modernisation scenario. In Katowice we are finishing work on the food court. Other centres are currently under audit, which is why I have not ruled out similar projects for them in the future on a larger or smaller scale. A year ago we refurbished Avenida Poznań – formerly Poznań City Center – and we are continuing to work on it.
If you were to list the challenges and pitfalls a company such as ECE has to face on the retail market in Poland, what would they be?
It is no secret that tenants are much more selective and critical these days, because the range of available locations is much wider for them and as a result landlords are prepared to show much greater flexibility than in previous years. So the main challenge involves making centres more attractive to offer customers the best tenant mix, which should both be comprehensive and well matched. The development of online retail is also a challenge, as it forces us to redefine and sometimes reinvent shopping centres. We have to make customers come to us rather than just sit in front of their computer. This includes work on the tenant mix and the attractiveness of the place itself. Again, this requires refurbishments. You need to make centres attractive enough to be magnets and destinations in themselves.
Coming back to the uncertainty surrounding the proposed changes to the law: have you already come up with a response if a Sunday trading ban is introduced?
We can only comply with the law as it stands. We have experience of several markets in terms of shopping centres closing on Sundays. So we are preparing a separate scenario for each of our centres if such regulations come into force. We are also working together with the Polish Council of Shopping Centers and have entered into a dialogue with government ministers.
What do you think ECE shopping centres will be like in ten years’ time?
I think that by gradually improving the mix, not just the range of retail but also of other services, we will be able to redefine our centres in such a way that in ten years what they will offer will perfectly match the expectations of contemporary consumers. They should also form an important part of the public space in the centres of some of the largest cities. These will be the parameters of the success of a shopping centre. We hope that our malls will continue to be integral parts of city centres. Our ambition is for them to complement or even anticipate the needs of a city’s inhabitants.