Experts forecast key trends in the Polish commercial real estate market in 2013

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According to the experts at CBRE, in 2013 the commercial real estate market will be shaped by an increasingly competitive environment coupled with stalling economic growth.

Among the many trends on the shopping center market, CBRE experts have singled out three which they expect to be actively targeted by investors. These are the unexpected yet dynamic growth of high streets in major Polish cities, the emergence of new specialized shopping center formats and the return of interest in big cities, which are opening up new market and geographic niches.

Contrary to expectations, the situation on the shopping center market is causing high streets in Warsaw and other big cities to flourish. A shortage of new premium commercial space in the centers of many cities, which enjoy high disposable income and strong demand, has meant that areas which have so far lain dormant are now buzzing with commercial activity.

Another reason for thriving high streets are the barriers faced by independent tenants when attempting to enter shopping centers, coupled with a boom in the number of bars and restaurants, as well as rapidly growing number of independent stores.

“In Warsaw, the area south of the city center is growing especially quickly in the vicinity of Trzech Krzyzy Square and Mokotowska Street and the streets to both sides of Marsza³kowska Street (Nowogrodzka, Zurawia, Wspolna, Hoza and Wilcza). This area has become a veritable mecca of bars, restaurants, independent boutiques and specialist stores.

“Another stimulus to the development of Warsaw’s city center is expected once the second line of the underground is completed. It will bring about a growth in trade along Swietokrzyska and adjoining streets”, said Karina Kreja, Associate Director, Research and Consultancy at CBRE in Poland.

Shopping center projects are also becoming increasingly specialized. Up till now mainly refurbishments and extensions of existing centers were mentioned in this context. But according to experts at CBRE, more symptomatic is the growing number of specialized projects such as retail parks (complexes of specialty stores such as furniture shops or DIY stores), discount centers (outlet centers) or entertainment centers.

A maturing shopping center market is forcing developers and asset managers to broaden their range. This metamorphosis is well illustrated by the evolution of outlet centers, which have become not only discount shopping destinations but also places to dine or to spend time as a family.

This showcases changing consumer habits as well as growing brand awareness among Polish shoppers. A good example of this is the fact that the strategic tenant in Szczecin Outlet Park, which is just being opened, is Helios, a cinema chain.

CBRE experts are also observing resurging interest from investors regarding retail real estate in big cities. After an initial phase of expansion on the Polish market, which focused on a few key urban locations, in the period 2006 – 2009 developers began growing quickly in smaller cities. Even though this growth is continuing, its potential is clearly on the decline, while medium and small cities are becoming increasingly saturated with retail real estate, to a degree beyond the demand created by these markets.

Large cities are still offering a lot of opportunities, if not in the segment occupied by leading top quality projects (where competition is stiff), then when it comes to small, local, neighborhood projects or strip malls. Especially the outskirts of cities and distant suburbs still have demand for modern retail real estate and offer good growth prospects.

"The recently completed sale of the Manufaktura shopping center in Lodz is a proof of the investment market becoming increasingly polarized. While the best centers with yields of up to 6% are attracting investors who view them as safe, long-term investments, a growing number of inferior projects, which have been on the market for a long time, are struggling to find buyers.

"The total volume of retail real estate investment transactions in the first three quarters of 2012 amounted to €128.5 million, bearing in mind there were no such transactions in Q3", added Karina Kreja.

An additional factor driving competition on the retail real estate market are internet stores. However, the dynamic growth of e-commerce in Poland will not bring about the demise of ‘bricks and mortar’ stores. According to a survey conducted by CBRE among representatives of 50 leading international retailers, in two years’ time 72% expect to operate the same or a greater number of stores, while two thirds of retailers say they will need more shop space across their total network as a result of their multi-channel strategy.

This is partly due to the fact that while shoppers are happy to browse online stores, they often opt for a personal pick-up at the store. Meanwhile, global retail chains are in the process of restructuring their retail channels – 63% of those surveyed expect that in two years’ time they will be fully multi-channel.

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