At the end of 2009, the total volume of modern retail stock (defined as retail schemes exceeding 5,000 sqm GLA, delivered after 1990) in Poland exceeded 9.55 million sqm. New stock delivered in 2009 amounted to 950,000 sqm, which was more than in 2008, when over 900,000 sqm was built. Such high supply resulted from completions of projects started two or three years ago, during a period of economic prosperity.

The world financial crisis and economic slowdown in Poland, together with their impact on retail supply, will take its toll in 2010 for the first time. After three years of annual supply exceeding 850-900,000 sqm, forecasts for 2010 currently amount to 550-600,000 sqm.

This substantial drop in new deliveries will be the result of widespread delays, as some construction work has been put on hold, some projects have failed to secure financing and others have not even started.

More than 42 percent of the supply delivered in 2009 was situated in major Polish cities with populations exceeding 400,000. Over 23 percent of total new stock was situated in cities of fewer than 100,000 inhabitants.

In 2010 major and smaller (above 400,000 or under 100,000 inhabitants) cities will be much closer in terms of share in new supply, with each accounting for around 34 percent of the total. This high concentration on smaller cities will, again, stem from investment decisions made two or three years ago.

Spring improvements

This year the retail market will still be hampered by issues such as steep equity requirements, high pre-let requirements and rising fit-out contributions for a wider group of tenants. Lack of funding will remain the main problem for both developers and retailers.

However, some signs of a spring recovery are visible. New, optimistic announcements have been published recently – Echo Investment has been granted financing for its Kielce project, ECE Projektmanagement’s Galeria Kaskada in Szczecin will be financed by Berlin Hyp, and upscale retailer Alma’s expansion plan will be backed by PKO BP. DTZ forecasts selective but gradual growth in loan-granting activity.

Tenant problems

Last year was characterized by the strengthening of retailers’ position in negotiations with shopping-center owners and developers, which resulted from reduced demand pull. Tenants such as Galeria Centrum, Monnari, Roy, Andre Rennard, Pabia, Hot Oil, Deep, Domar, Meble Swarzędz, Molton, Szame and Vanita announced bankruptcies, while many other chains introduced restructuring strategies and closed unprofitable shops.

In 2009, retailers also faced increasing operating costs which resulted mainly from unfavorable euro and dollar to złoty exchange rates, as well as financing problems, either with securing bank deposits or covering fit-out costs for new outlets. In DTZ’s opinion, the wave of spectacular bankruptcies is over and the EUR/PLN exchange rate will stabilize, which will make 2010 more predictable from the retailers’ perspective.

Some chains have had to revise their expansion strategies, focusing now on larger cities, which are more resistant to economic slowdown. Retail chains are now more selective in terms of retail schemes and more demanding in terms of fit-out contributions, which leads to slower pre-letting of the new projects. Tenants currently pay more attention to the quality and state of advancement of a project, choosing those whose size and concept are well-fitted to the local conditions and have a clear planning situation.

Stable and getting better

Despite gloomy forecasts, an analysis of country retail sales patterns shows that the situation in 2009 was relatively stable in comparison to 2008.

Economists now predict a slow but gradual improvement in consumer spending. Also, many retailers are looking optimistically to the future and awaiting increasing turnover in the second part of the year.

Ewa Derlatka-Chilewicz is associate director of DTZ's Consulting and Research team