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News Release

Warsaw

One third of shopping centres trading in Poland have undergone various types of modernization, this trend looks set to strengthen in the future due to property aging and changes to the retail market

Approximately 100 shopping centres will have been subject to modernization by end of 2014, according to the new retail research report by Jones Lang LaSalle


Warsaw, 6 September 2012 – Jones Lang LaSalle is pleased to present a new report on active asset management strategies in Poland under the title: “Refresh, Renew, Regear. Future Options for Polish Shopping Centres.”
Beatrice Mouton, Head of Retail Agency in Central and Eastern Europe, Jones Lang LaSalle comments on the report’s key findings: „50% of all shopping centres trading on the Polish market were developed before 2002, thus they are today aged 10 and more. Nearly half of them have since completion undergone various types of modernization, including extension, with the aim of catching up with the ever changing market conditions and mitigation of the effects of property aging. The changes which particularly affect shopping centres, encompass growing market competition, demand for highest quality space from international retailers entering Poland and evolving customers’ shopping patterns, including an increasing role of e-commerce as a sales channel”.

In addition, the anchors of shopping centres are changing too. While in 2000, a gallery represented only 50% of the centres’ space, the remaining half being occupied by a food store anchor, this proportion grew to 74% in 2012 in favour of a gallery and Jones Lang LaSalle predicts the share to reach 78% in 2014.
Jones Lang LaSalle estimates that one third of all existing Polish shopping centres were subject to modernization and lots of other projects are planned for re-development and/or extension; by the end of 2014, approximately 100 of retail assets will have been up-graded in one form or other.
Agata Sekuła, Head of Retail Capital Markets in Central and Eastern Europe, Jones Lang LaSalle, comments: “This trend is particularly pronounced given the recent growth in the proportion of value add and opportunity driven investors in the entire investor universe. Additionally, a number of core investment vehicles decided to shape their investment strategies around value creation opportunities. In the current market, in relation to many assets returns are generated through additional income development and adoption of active asset management strategies rather than yield compression. On the other hand, sometimes the shopping centre may be considered as too asset management intensive to sustain its status quo, not to mention further growth potential. Therefore, a key to success is to identify the point in the lifecycle of the asset when it still offers various value add opportunities and more importantly to acquire based on a detailed business plan with a very specific development programme in mind which is implemented following the acquisition” - adds Agata Sekuła.
Based on case studies, the report describes in detail the following strategies of risk mitigation against functional and technological obsolescence of shopping centres: re-development/ re-modelling, extension, additions, re-commercialization and refurbishment.

Virginie de-Baere, Director of Property Management in Central and Eastern Europe, Jones Lang LaSalle, says: „Through expanding its retail floor space and upgrading the tenant mix and retail offer, the re-development/ re-modelling process aims at increasing the market share and creating extra income. In the case of some older shopping centres, driven by hypermarket operator, re-development leads to a shift from food retailing to fashion oriented centre offering more space for numerous multiple retailers. In opposition to a new project development, re-development is easier and less risky in terms of administrative procedures. Also, having established market position and recognition in the minds of retailers and customers, it is easier to attract new tenants and maintain the customer traffic.”

Examples of re-developed and/or re-modelled shopping centres encompass amongst other: Blue City and Klif in Warsaw, Galeria Pomorska in Bydgoszcz, Molo in Szczecin, Pasaż Łódzki in Łódź, and Galeria Gniezno in Gniezno.
„Jones Lang LaSalle data from the last two years and our forecast for 2013-2014 clearly shows that also extensions make a popular strategic asset management route. Extensions to the existing centres represent on average one fifth of annual retail completions each year. Recent examples from the Polish market include Galeria Echo in Kielce, Silesia City Centre in Katowice, Jantar in Słupsk, Magnolia Park in Wrocław as well as Warsaw’s Galeria Mokotów and Promenada. This form of active retail asset management is characteristic of relatively young retail centres with an established market position and high occupancy rates, whose owners intend to substantially grow a market share by adding new space dedicated for new anchor tenants and strong in-line retailers entering the Polish market” - explains Beatrice Mouton.