A year full of challenges ahead of the market

Retail

A year full of challenges ahead of the market

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Last year the domestic retail market increased by nearly 500 000 sqm, which when compared to the average from the past decade standing at slightly more than 660 000 sqm, shows that there has been a significant slowdown in supply growth. The authors of the "At a Glance, Modern Retail Market in Poland. Q4 2017" report draw attention to the decreasing market absorption on the one hand, and the increasing pace of changes occurring within modern retail on the other one.

Supply: primacy of metropolises and smaller cities

14.2 million sqm, this was Poland's estimated total volume of modern retail space at the end of last year, where the traditional shopping centre format accounted for 73% of it. 360 000 sqm of the delivered modern retail space, in the traditional shopping centre, retail park and outlet centre format, were located in 13 new and 10 extended schemes. A further 88 000 sqm came from the launch of large new DIY, sports accessories and furniture and home decor stores representing the freestanding retail warehouse sector.
Last year's result was strongly impacted on by the last quarter which saw the opening of large shopping centres in cities of regional reach. Schemes of comparable size (64 000 sqm) commenced operations in Warsaw (Galeria Północna) and in Lower Silesia's capital (Wroclavia). Kraków's slightly smaller Serenada (42 000 sqm) opened its doors towards the end of October. The scheme, which is the first one of this type in northern Kraków, welcomed more than 2.3 million visitors over the first two months of its operation.
Another driver came in the form of schemes that had appeared on the maps of small regional cities, which consistently demonstrates the important role played by schemes of this type in both developers' strategies and retail chains' plans. The authors of the report at BNP Paribas Real Estate Poland point out that at the end of December as much as 18% of total supply of retail space was located in cities with a population of less than 100 000 residents. Analysts estimate that this trend will be gaining in importance over the coming quarters.
Extensions of existing schemes accounted for 15% of last year's supply, both in the regional cities, such as the Galaxy centre in Szczecin owned by EPP, and in the smaller ones, e.g. Karuzela in Turek and Era Park Handlowy in Radomsko.

Demand: chain growth and diversification

The currently favourable economic situation supported by positive signals from the global economy, rising GDP, gradually increasing wealth of the Polish population and the financial means deriving from the government-run 500+ programme allocated to consumption mean that the domestic market is now attracting brands that consider launching their operations in Poland, with 35 of them premiering last year. They included names so far absent from Poland, while new concepts of brands already functioning here made up the rest. Those more noteworthy include the Victoria's Secret boutique in Arkadia offering the brand's entire collection, the first Spanish Sfera stores in Galeria Mokotów and Wroclavia, as well as the entry of the brands from the portfolio of the Russian fashion giant Melon Fashion Group: Zarina, Love Republic and befree. The authors of the report highlight that even though the brands interested in entering the Polish market usually look for space in high class schemes in large cities, the smaller schemes in Poland's regional markets are also an attractive field for expansion, in particular for discount store operators.
2017 was also the year of exits from the domestic market. July saw the disappearance of the last store of the British brand Marks & Spencer. Additionally, the stores under the Springfield logo were closed down. TopShop, Dorothy Perkins, Stenders and American Eagle also disappeared from Poland recently.

Poland is the most important market in Central and Eastern Europe. It is natural that nearly 40 million potential customers would attract the interest of foreign brands. What can also be seen as an advantage is the relatively broad and interesting offering of retail schemes that meet the criteria necessary for a debut and possible expansion

Natasa Mika, Head of Retail Agency

Rents: stable prime rents and falling average values

The rent to be paid for prime retail space in the capital oscillates between EUR 110.00 and EUR 130.00 per sqm per month. Rents in the last quarter of 2017 did not record any significant increases or drops. Monthly rents for space in high class shopping centres in regional cities stood at the end of last year at between EUR 45.00 and EUR 60 per sqm.
However, there have been considerable changes as regards schemes that are now losing their market position and struggling against strong competition. Their owners are facing growing tenant expectations in terms of reduction of rents and increases of store fit-out contributions.

Schemes under construction: mostly alterations and extensions

The clear majority of modern retail space under construction, i.e. 460 000 sqm out of 555 000 sqm, will be delivered to the market as early as 2018. Similarly as in the past years, key openings will remain the domain of large regional cities. The Tricity will see the launch of Forum Gdańsk (64 000 sqm), while in turn there is the planned opening of Galeria Libero with its 42 000 sqm and 150 stores in the south part of Katowice. Additionally, Gemini Park Tychy (37 000 sqm) is set to open in the first quarter of this year.
Experts highlight that in 2019 there will be a visible drop in supply relating to the limited number of large schemes in agglomerations and regional cities. On the other hand, the market will see a growing trend for extensions of existing schemes, which might account for 20-23% of new supply.

Modernization, remodelling and repositioning are words that we will be using quite frequently in the coming years. The era of hypermarket domination is without doubt over now, and it is possible that over time certain schemes in the best recognizable locations will change significantly as to adjust their offer to current and future trends. The focus will increasingly be shifting towards entertainment and social functions. Modern schemes will play a part in forming urban micro-universes using publicly accessible outside spaces, while schemes located in the centres of larger cities will see the emergence of innovative food and drink concepts modelled on market halls, as well as event hubs to enthusiastically embrace and promote art and culture

Fabrice Paumelle, Head of Retail, Central and Eastern Europe

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