Retail

The first quarter of 2021 was driven by small shopping centers, new trends and e-commerce

13 maja 2021

2021 saw the retail industry face yet another challenge: the government brought forward a proposal for a new form of support for retailers in the shape of an 80% reduction in rent for the duration of the closure of retail operations in shopping centres and a 50 % reduction for the 3 months following the lifting of the restrictions. Naturally, shopping centre owners are objecting this, arguing that the costs of supporting tenants are yet again being passed onto them. The government’s interference with the relationship between the two parties could lead to a deadlock in negotiations that, after all, have been taking place ever since the beginning of the pandemic.

The new regulations proposed by the government could lead to shopping centre owners becoming insolvent. Bank loans usually provide 70-80% of the finance for retail properties, with leases acting as security. The proposed changes will have an adverse impact on all owners of shopping centres of more than 2,000 sqm GLA, irrespective of whether they are foreign investors or domestic operators. According to data provided by the Polish Council of Shopping Centres, the estimated value of the retail industry debt currently stands at approx. PLN 90 billion.

The attempt at regulating rents interferes with the freedom of contract, i.e. the right of private entities to set the terms and conditions that will govern their relationship. Shopping centres are a complex system of interconnected vessels where supporting one side and passing most of the costs onto the other will affect the other links in the chain: banks, suppliers, operators providing services to the shopping centres and, consequently, the same tenants that are to benefit from this aid package today

Fabrice Paumelle, Head of Retail, BNP Paribas Real Estate Poland

A mere 66,600 sqm of new retail space were delivered to the market in Q1 2021. As far as the structure of the new supply is concerned, large-scale retail schemes are the dominant format (54% of the new space), this due mainly to the launching of three former Tesco stores (Tychy, Ruda Śląska and Starogard Gdański) under the Castorama banner. In turn, the share held in the new space by retail parks stands at approx. 35%, which is the result of the opening of Pasaż Warmiński in Lidzbark Warmiński, Aura Park in Nakło nad Notecią and Atut Bielany in Kraków. Where the share of retail parks in new supply is on the up, we are seeing a decreased level of activity in terms of extensions and modernizations of shopping centres – as they are no longer the format that dominates on Poland’s retail market. This is the consequence of the difficult situation in which shopping centres have found themselves as a result of the COVID-19 pandemic. The high level of capital expenditure required to carry out any modernization work means that investors are exercising caution when it comes to undertaking this type of projects at the moment.

There are approx. 390,000 sqm under construction now to be delivered to the market by the end of 2021.

As far as the schemes currently under development are concerned, small- and medium-scale shopping centres and retail parks are the dominant format, with more than 53% of the space located in cities with a population of up to 50,000 residents, while only 14% thereof is located in the largest agglomerations. The share of retail parks in the retail stock is increasing from one year to another, and the new COVID-19 reality showed us that this is a crisis-proof format. As at the end of Q1 2021, retail parks accounted for 40% of the space under construction, with the format being dominated by small schemes with a leasable area of 5,000-10,000 sqm located in cities with a population of less than 100,000 residents. The growth of this segment comes from the expansion of discount store chains that are appearing on the market mainly in small shopping centres and convenience retail parks in cities with a population of up to 100,000 residents

Małgorzata Fibakiewicz, Head of Business Intelligence Hub & Consultancy, BNP Paribas Real Estate Poland

Q1 2021 was also marked by the launch of the long-awaited Polish edition of the Amazon platform. Despite the uncertain circumstances prevailing on the retail market in Poland, there were four new brands that debuted here in Q1 2021: DentalPro Clinic from Italy, Duxiana from Sweden, Rolf Benz from Germany, as well as the Polish hard discounter chain Vollmart. The position of discount stores—both grocery and non-grocery ones—on the Polish market has been growing in strength for years now, and the pandemic additionally boosted this growth trend. Consumer shopping habits saw a strong shift towards chain stores during the pandemic and seeing that it is difficult to predict when yet another lockdown might be taking place, non-grocery discounters are looking to launch online sales. Pepco was the first operator to take this step and announced its plans to start trading online.

Shopping centres are seeing—thanks to a large extent to flexible leases—an increasing number of pop-up stores. Temporary stores represent an attractive solution for emerging brands, and a way to reduce the vacancy rate within the given property. Additionally, shopping centres are now also taking the decision to lease space to second-hand shops. In the age of ever-increasing environmental awareness displayed by the society, giving things a second life is a trend that will continue to grow in the future.

Prior to the pandemic, the share of e-commerce in retail sales in Poland oscillated around 5-6%. Due to the successive restrictions imposed on the industry and the many weeks of the closure of traditional retail operations, e-commerce proved to be the only channel of distribution for numerous stores. However, the share held by e-commerce in all retail sales in Poland fell from the 9.8% in January to 8.6% in February when shopping centres reopened their doors to shoppers. Nonetheless, the figure is still much higher than that recorded in 2019. At the same time, it became obvious during the pandemic that traditional retail is not going to disappear, and a large number of the Polish population remains attached to the traditional sales model, as evidenced by the clear slowing down of the pace of online sales that took place at the end of each successive lockdown and with the lifting of the restrictions imposed with regard to shopping centre operations.

Q1 2021 on the retail investment market ended with a particularly good result.

The total value of retail properties transacted during this period reached nearly EUR 190 million, which is the best result recorded in the first quarter of the year over the last 5-6 years. The largest transaction completed in Q1 2021 was the purchase by EPP of four M1 schemes (Olsztyn, Tychy, Opole, and Kielce). This was the last tranche of Chariot Top Group's assets transacted under an agreement signed in 2018. In turn, nearly 20% of all the retail assets transacted were formerly owned by Tesco. Taking into account the restrictions imposed on the operations of large retail schemes in Poland, the change in consumer behaviour and the booming local shopping experience, retail parks and convenience shopping centres will continue to attract investors in the coming months, as assets with the highest level of liquidity

Mateusz Skubiszewski, Head of Capital Markets, BNP Paribas Real Estate Poland