Dariusz Forysiak, Director in the Investment Advisory Department at Colliers

WARSAW , September 7, 2022 - In the first half of 2022, the key factors shaping the retail real estate market in Poland returned to their pre-pandemic level - this sector records good results in terms of both turnover and footfall, and shopping centers trading companies generate attractive returns for investors. A revival on the commercial investment market is also noticeable. However, we are observing a change in trends.

A dash of mixed-use

There have been talk of changes in the retail market that would redefine the way in which retail space is developed for several years. Meanwhile, it was the pandemic that became the catalyst for changes in this area. Two key factors have emerged that have led the owners of such facilities, investment funds and developers to increasingly focus on mixed-use projects - combining retail, service, residential and office functions. On the one hand, it is the effect of an increase in free space in existing commercial facilities after some tenants have left during the lockdown period. On the other hand, the pandemic caused a decline in the capital value of commercial space in less popular centers, which attracted several investment funds, willing to purchase a 100% leased shopping center in order to redesign it and rebuild it into mixed-use. However, the trend of revitalizing old, post-factory facilities is nothing new, as exemplified by the recently commissioned investments in the capital - the Norblin Factory or the Warsaw Breweries. It also happens that buildings over twenty years old, previously used for commercial purposes, are demolished, and in their places investors plan to erect multi-functional facilities. These are the expectations of consumers who can work, live, shop and spend time in one place. This type of action was announced, among others, by Echo Investment, which will create a mixed-use project called "Garden on the Escarpment" in Kabaty in place of the premises of Tesco, or a new project at the site of the Jupiter shopping center on Towarowa Street in Warsaw. However, the trend of revitalizing old, post-factory facilities is nothing new, as exemplified by the recently commissioned investments in the capital - the Norblin Factory or the Warsaw Breweries. It also happens that buildings over twenty years old, previously used for commercial purposes, are demolished, and in their places investors plan to erect multi-functional facilities. These are the expectations of consumers who can work, live, shop and spend time in one place. This type of action was announced, among others, by Echo Investment, which will create a mixed-use project called "Garden on the Escarpment" in Kabaty in place of the premises of Tesco, or a new project at the site of the Jupiter shopping center on Towarowa Street in Warsaw. However, the trend of revitalizing old, post-factory facilities is nothing new, as exemplified by the recently commissioned investments in the capital - the Norblin Factory or the Warsaw Breweries. It also happens that buildings over twenty years old, previously used for commercial purposes, are demolished, and in their places investors plan to erect multi-functional facilities. These are the expectations of consumers who can work, live, shop and spend time in one place. This type of action was announced, among others, by Echo Investment, which will create a mixed-use project called "Garden on the Escarpment" in Kabaty in place of the premises of Tesco, or a new project at the site of the Jupiter shopping center on Towarowa Street in Warsaw. Examples of which are the recently commissioned investments in the capital - Fabryka Norblina or Browary Warszawskie. It also happens that buildings over twenty years old, previously used for commercial purposes, are demolished, and in their places investors plan to erect multi-functional facilities. These are the expectations of consumers who can work, live, shop and spend time in one place. This type of action was announced, among others, by Echo Investment, which will create a mixed-use project called "Garden on the Escarpment" in Kabaty in place of the premises of Tesco, or a new project at the site of the Jupiter shopping center on Towarowa Street in Warsaw. Examples of which are the recently commissioned investments in the capital - Fabryka Norblina or Browary Warszawskie. It also happens that buildings over twenty years old, previously used for commercial purposes, are demolished, and in their places investors plan to erect multi-functional facilities. These are the expectations of consumers who can work, live, shop and spend time in one place. This type of action was announced, among others, by Echo Investment, which will create a mixed-use project called "Garden on the Escarpment" in Kabaty in place of the premises of Tesco, or a new project at the site of the Jupiter shopping center on Towarowa Street in Warsaw. These are the expectations of consumers who can work, live, shop and spend time in one place. This type of action was announced, among others, by Echo Investment, which will create a mixed-use project called "Garden on the Escarpment" in Kabaty in place of the premises of Tesco, or a new project at the site of the Jupiter shopping center on Towarowa Street in Warsaw. These are the expectations of consumers who can work, live, shop and spend time in one place. This type of action was announced, among others, by Echo Investment, which will create a mixed-use project called "Garden on the Escarpment" in Kabaty in place of the premises of Tesco, or a new project at the site of the Jupiter shopping center on Towarowa Street in Warsaw.

It is worth noting, however, that these are long-term processes - redesigning a retail facility takes three to seven years and requires considerable investment. Therefore, we will see the effects of these changes in a few years. However, it can be expected that the next two years will bring several important transactions involving mixed-use facilities .

E-commerce favors stationary stores

So far, much has been said about the significant impact of e-commerce on the warehouse and logistics sector and further records in terms of demand, supply and transaction volume on the investment market. Currently, e-commerce is also driving the development of stationary commerce . Yes, this is not a mistake.

Contrary to concerns about the disappearance of stationary stores, traditional trade is returning to favor, among others due to the high transport costs caused by the increase in fuel prices. In some cities around the world, municipal authorities have introduced restrictions due to the dynamic increase in traffic. For example, in London, the number of vans has increased to such an extent that the city has started to limit the number of couriers who can enter or travel around it.

Lease costs also speak in favor of traditional trade - in some centers rents are only 20-30% higher than in the case of warehouse space in city centers or close to city centers (when it comes to areas of 1,000 sq m or 2,000 sq m) . In addition, e-commerce logistics becomes a much greater challenge than organizing sales in commercial facilities.

In the near future, as an additional burden for online stores, I would also mention the operating costs associated with the no-cost returns commonly offered to customers.

Three pillars

In the coming years, the retail market will be based on three real estate categories. The first of these will be very large regional shopping centers (100-120 thousand sq m GLA), which will attract customers who live up to an hour away from them. There are relatively few such facilities in Poland - only a dozen - and therefore they will maintain a fairly high investment value for the current owners and potential investors for a very long time. The second category includes medium-sized centers (up to 40,000 sq m GLA), in cities below 100,000 sq m. residents. Properties of this kind gained importance during the pandemic - they were the main shopping destinations for local residents. As the third category, I would mention retail parks, which have been popular for several years due to the interest in them on the part of investment funds. It is estimated that approximately 20% of transactions carried out in the first half of this year were related to this type of facility. They were bought, among others, by LCP Properties and Centerscape funds. Their attractiveness will surely remain for a long time - among customers, investors and developers.

Future transactions

Also in terms of investment, the retail market is recovering. In the first half In 2022, the volume of transactions in this sector amounted to EUR 0.8 billion, which is 28% of all investments made at that time. Significant transactions - worth more than EUR 100 million or EUR 200 million - are expected in the second half of 2023. Why only then? It is likely in the second half of 2022 that expectations regarding the selling price of commercial real estate and the price payable by buyers will come close enough that they will decide to carry out a transaction, which usually lasts from six to 12 months. In addition, it should be remembered that today the possibility of obtaining bank financing is very limited, which has a large impact on the possibility of carrying out most transactions.

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