The Arkadia shopping mall in Warsaw Courtesy of Wikimedia Commons

While there is still plenty of room for more retail development in Poland, at least the continuing economic malaise in Europe isn’t dragging the market down. Poland’s retail market is maintaining steady growth, as supply still fails to meet demand, according to analysts. Modernization and expansion is a big trend, and even with a largish pipeline of projects on the way, there is still plenty of room for development.

According to Jones Lang LaSalle, the third quarter of 2012 saw anemic delivery of retail stock in Poland, at just 31,600 sqm. But that belies the overall trend – the last quarter of the year will see a huge increase, to some 162,000 sqm of stock in seven new and three extended schemes. By year-end, Poland’s retail stock will have grown by 415,000 sqm, in line with 2010 and 2011 levels.

Warsaw dominant

Warsaw maintains average density for Poland in terms of stock to population, with about 400 sqm for every 1,000 people. Moreover, only 14 percent of the country’s total stock is located in the Warsaw market. As a capital city with by far the largest purchasing power (about €9,091, compared to a country average of €6,607), analysts see this as far too little.

Even though there are several projects in the pipeline – including under construction projects at Plac Unii, just south of the city center, and two shopping and leisure centers planned by GTC, CBRE characterizes Warsaw’s 2011-2013 pipeline as “clearly insufficient,” leading to negligible vacancies and an expanding area of the prime retail zone. CBRE calculates the vacancy rate in Warsaw at about 1.6 percent, compared to an average vacancy rate in cities with more than 200,000 inhabitants of nearly 3 percent, according to JLL.

Demand reflects these assessments, with a number of well-known international retailers pulling the trigger to enter the Warsaw market. These include American Eagle Outfitters (Arkadia), Victoria’s Secret Beauty & Accessories (Złote Tarasy and Galeria Mokotów), and Hollister from Abercrombie & Fitch (Galeria Mokotów).

Smaller cities

Some 57 percent of Poland’s retail stock is situated within the markets of Poland’s eight largest cities, according to CBRE, but small cities continue to attract plenty of attention. The two shopping centers that were brought to the Polish market in Q3 were in cities with fewer than 70,000 inhabitants. Both were developed by P.A. Nova – Odrzańskie Ogrody was delivered in Kędrzyn Koźle, a city of just 64,000 inhabitants, while Galeria Miodowa went up in Kluczbork, with just 25,000 people.

This, according to JLL, “proves that developers and retailers value the attractiveness of smaller cities, even those below 50,000 citizens.” Plenty more development in small cities is expected to come over the next couple of years, at least.

More modern

As developers try to find ways to meet demand, several shopping centers in Poland are undergoing modernization and extension.

“To date, one-third (i.e. 2.5 million sqm) of the existing shopping center supply has been put under some kind of revitalization program,” wrote JLL analysts in a recent report. By 2014, a further 20 projects, in addition to the 74 that have already been modernized, will see revitalization. Included in this number are some Warsaw malls, such as Blue City, Galeria Mokotów, Klif and Promenada.

The consultancy says that the number of value-add and opportunity-driven investors has increased significantly, and describes their investment strategy of buying up older assets and revitalizing them to help them reach their full potential as an “interesting” one, but one which nevertheless requires considerable experience and expertise.

Rents

Warsaw remains the most expensive retail location in the country, with high-street locations demanding anywhere between €75-95 per sqm per month. Złote Tarasy, Arkadia and Wolf Bracka charge significantly more than other schemes, according to CBRE.
In major agglomerations, rents are significantly lower, around €35-55, while prime rents in secondary cities vary between €21 and €40.

JLL warns that shopping center owners and developers must be prepared for downward rental pressure and tenants’ expectations with regard to fit-out contribution, but adds that this refers to “secondary, not leading assets.”