Small cities, big shopping? Retail parks in cities with 30, ,000 inhabitants

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1 Small cities, big shopping? Retail parks in cities with 30, ,000 inhabitants

2 Introduction The retail park format is still relatively unpopular in Poland. There are many causes for this, such as the climate, the condtion of road and transport infrastructure, planning aspects or the availability and prices of real estate. Despite this, within the last 25 years, approximately 90 retail parks have been built in Poland, whose total space amounts to 1 million m 2 GLA. Further 200,000 m 2 are in the construction or advanced planning stage. A pioneer in this market was IKEA, which owns the largest retail parks in Poland including RP Targówek and RP Janki in the Warsaw agglomeration, RP Matarnia in Tricity and Aleja Bielany in the Wrocław agglomeration. Retail parks in Poland are mainly located in the largest agglomerations (approximately 65% of retail stock), although in recent years many retail projects have been built in smaller cities of fewer than 100,000 inhabitants (almost 25%). The large retail park market is quite well classified and described. The largest projects have found their place and both clients and tenants have shown their interest. In this report we decided to focus on the less known sector of this market, namely small and medium-sized retail parks in cities of up to 100,000 inhabitants. These projects are often the only option for people looking to do their every day shopping in modern retail projects near to where they live. We encourage you to read our latest report. The fewest number of retail parks can be found in the mediumsized cities (a little bit more than 10% of the total stock). The largest retail park located in a medium-sized city is Karolinka in Opole, with 32,000 m 2 GLA. CONTACT: Przemysław Dwojak Director Customer Analytics and Sales Strategies przemyslaw.dwojak@gfk.com Piotr Pieńkos Researcher Customer Analytics and Sales Strategies piotr.pienkos@gfk.com CONTACT: Dominika Jędrak Director Research and Consultancy Services dominika.jedrak@colliers.com Katarzyna Michnikowska Senior Analyst Research and Consultancy Services katarzyna.michnikowska@colliers.com

3 Where do inhabitants of small cities do their shopping? For the purpose of this report, a consumer survey was conducted in a city with a population of fewer than 50,000, beyond the impact zone of a large city, and thus a separate and independent urban area. The retail park located there with an area of 5,500 m 2 GLA is the only one of its kind in the city. It means that we have chosen a commercially mature city, with moderate market saturation and slightly above-average level of resident prosperity (purchasing power higher by 5.4% than the national average). This choice allows us to create a commercial image of an example city out of a group of cities with a population of up to 50,000 inhabitants, with a purchasing power sufficient to encourage investors building small retail parks and yet small enough that this potential is usually unexploited by other commercial facilities already operating in the city. In a small city, the retail park is not the only place to go shopping. 20% of consumers state that they do not visit it at all, while more than half of the population visits the centre at least once a month. RETAIL PARK VISITING FREQUENCY WHICH SHOPS DO CONSUMERS VISIT IN AN ANALYSED RETAIL PARK? 54% Source: GfK Polonia 1% 22% 23% Only FMCG operator Mainly FMCG operator and sometimes other stores Only shops other than the FMCG operator Mainly other shops and sometimes FMCG operator The position of the retail park on the shopping map of the city is diverse, when we look at it from the perspective of the FMCG offering and other product categories. The supermarket located in the park loses in popularity ratings (declared use) among other supermarkets and discount stores. WHERE DO CONSUMERS FROM SMALL CITY BUY FOOD PRODUCTS? % Source: GfK Polonia 20% 22% Once a week or more often 18% 17% Every two weeks Once a month Once every two/three monthes or less Never Surprisingly, the food operator is not the primary purpose of visits. Only a fraction of consumers visit a park only because of the supermarket, but for a further 22% it is the primary but not only purpose of their visits. The main purpose of visiting a retail park in the concerned city is its offer of clothing, footwear and other stores, which differs from the expected result of the primary purpose being to visit the FMCG operator However, the park holds a strong position when it comes to shopping for clothes and footwear. While it is the leader in terms of popularity for shopping in this category, it does not have to compete with similar facilities (there are none), but with traditional shops and offerings in large cities. WHERE DO CONSUMERS FROM A SMALL CITY BUY CLOTHING AND FOOTWEAR? Supermarket Discounts Supermarket in retail park Surce: GfK Polonia Street nonchain shop Market place/bazaar Outside the city Source: GfK Polonia 3

4 At a distance of several dozen kilometers from the city concerned, there are also major cities where a wide range of retail goods are offered. Therefore, a significant part of residents do their shopping in those cities. This applies to more than half of the residents a vast majority of them shops in a bigger city at least once a month. WHY DO A SMALL CITY INHABITANTS GO SHOPPING TO BIGGER CITIES? A larger selection of clothing and footwear shops/a wider range of products in clothing and footwear shops Possibility to use additional offer (food, entertainment) Possibility of shopping in the large shopping centres I work there /it is on the road/ by the way Way to spend free time A larger selection of shops, other than clothing and footwear / range of products other than clothing and footwear More affordable prices Ability to check the latest fashion trends Source: GfK Polonia A wider selection of food products HOW DO INHABITANTS CALL A RETAIL PARK? 2% 2% 4% 27% Source: GfK Polonia 44% 21% Retail Park Shopping Centre Supermarket Discount Other format I don't know/hard to say The range of important factors in how a retail park works, to which consumers pay attention, is broad and includes parameters closely related to its format (e.g. offer range, affordable prices) and visible effects of way it is managed (competent service, cleanliness). The list given, even though it refers to the specific facility, draws attention to the aspects that are important to the customers of a small retail park. THE IMPORTANCE OF THE ASPECTS TAKEN INTO CONSIDERATION WHEN SELECTING A PLANNED SHOPPING LOCATION Comfort and cleanliness Friendly and competent service in shops The main reasons for shopping in larger cities are intuitive they simply offer a wider choice. Another reason for a long journey is also the opportunity to visit large shopping centres or opportunities for leisure activities. A number of people do their shopping in a big city because it is conveniently located for them on their way from or to their place of work or when running other errands. The offerings of a big city are a real threat to small retail parks. Experience shows that their offer must be planned taking into account the attracting power of big players, even though they are located at a considerable distance. The study confirmed our hypothesis that the level of awareness of retail formats among residents of small cities (and their surroundings) is not high: the existing retail park for nearly half of the city s residents is simply a shopping centre at the same time, approximately half of consumers use the term supermarket to refer to discount stores such as Lidl or Biedronka. Easy access by car Affordable prices The oppurtinity to do all the necessary shopping in one place Easy to find a parking place Convenient opening hours Opportunity to do quick shopping The presence of a good grocery shop / large variety of food products Ability to shelder from the wather conditions (cold, sun, rain) Wide range of clothing and footwear shops Wide range of other than clothing and footwear shops Good reputation among family, friends Convenient walking access, close to home Popularity of the scheme A wide range of services (hairdresser, bank, post office, laundry, travel agency etc.) Convenient access by public transport (bus, train, tram etc.) The availability of entartainment offer (cinema, bowling, fitness etc.) Source: GfK Polonia 4

5 Retail parks in small cities Stock and supply The stock of retail parks in cities of up to 100,000 inhabitants totals approximately 250,000 m 2 GLA, which constitutes 13% of modern retail space in this location. Most retail park space is located in small projects and a fifth is constituted by retail parks of 2,000-5,000 m 2. Market practice shows that in small cities there are mainly retail parks of 5,000-10,000 m 2 GLA. RETAIL PARKS IN THE CITIES BELOW 100,000 INHABITANTS BY SIZE 21% 44% 9% 26% large (20,000-50,000 m² GLA) middle-sized (10,000-19,999 m² GLA) small (5,000-9,999 m² GLA) very small (below 5,000 m² GLA) The low level of competition in this sector is proven by data on the average density ratio there are only 61m 2 /1,000 inhabitants in comparison to 409 m 2 in traditional shopping centres. In 2010 developers found the potential of investment in retail parks in cities of up to 100,000 inhabitants. This was caused by the necessity to diversify in a highly competitive market, still under the influence of the global financial crisis in Most of this kind of space was delivered to the market in SUPPLY OF MODERN RETAIL SPACE IN CITIES BELOW 100,000 INHABITANTS (M 2 ) 300, , , , ,000 50, * 1,500,000 1,250,000 1,000, , , ,000 Traditional shopping centres Retail parks Supply 0 Among the investments in small cities, traditional shopping centres still dominate, however there are more and more retail parks every year promises to be a good year with over 60,000 m 2 of retail parks in cities of up to 100,000 inhabitants. We believe that the trend of retail parks in small cities will be stable in the medium term new investments will be located in both undeveloped markets and as further phases of existing projects. Active developers in the sector There are over a dozen developers active in the retail park sector in cities with fewer than 100,000 inhabitants, including Dekada Realty (Dekada), Eyemaxx Development (My Box), Immofinanz (Stop.Shop), Katharsis Development (HopStop), PA Nova, Rank Progress, Retail Concept (Karuzela), Saller and Trei RE (Vendo Park). The competition in this sector is increasing individual local entrepreneurs are also more frequently deciding to invest in retail parks. Also food chains that have land surplus in the direct neighbourhood of their shops are deciding to use their land reserve for this type of investment. OWNERSHIP STRUCTURE OF RETAIL PARKS IN CITIES 30, ,000 INHABITANTS (BY SUPPLY) 44% 8% 4% 4% 4% 4% 8% 8% 8% 8% Retail Concept Dekada Realty Saller Group Immofinanz Trei RE Rank Progress PA NOVA EYEMAXX RE Carrefour Other *prognosis 5

6 Main locations There are approximately 115 cities of 30, ,000 inhabitants in Poland. In most of them, modern retail projects already exist, including small retail parks with an everyday shopping profile. The largest number of such projects can be found in Śląskie, Mazowieckie, Lubuskie and Kujawsko-Pomorskie voivodeships. Mazowieckie Voivodeship is also a leader in terms of retail projects which are currently under construction or planned. A good example of a city where retail offer exists mainly in retail parks is Sochaczew with Sonata Park and Multishop. Retail parks in small cities are built in the centres and in large residential areas as well as along main exit roads. They are often part of larger shopping complexes such as for example Sonata in Sochaczew and Marcredo in Kutno. Some retail parks are located in the neighbourhood of existing retail projects with a stable market position, for example Pasaż Wiślany located near Galeria Grudziądzka. Others accompany free standing non-food markets for example Blue Park Przemysl near Castorama. Smaller retail parks that are located near free-standing supermarkets and food discounts (such as Vendo Park Chełm near Kaufland) are increasingly popular. Free-standing fast food restaurants may be an attractive neighbourhood for retail parks as it looks to be in the case of Karuzela Lubliniec near McDonald s. SATURATION OF RETAIL PARKS IN CITIES 30, ,000 INHABITANTS high average small 2 very small no. of cities 30, ,000 inhabitants Main tenants The group of tenants who are interested in leasing space in retail parks in cities of fewer than 100,000 inhabitants is limited and is increasing very slowly. This may be caused by the fact that many retail chains active in the Polish market have not worked out a proper concept for having a shop in a retail park; on the other hand, not every location chosen by developers is able to provide enough customer attendance and potential of generating turnover. The significant fact is that the high availability of space in traditional shopping centres encourages tenants who enter the Polish market (all over the world they are traditional retail parks tenants) to locate their shops in retail projects with other formats. In Poland, retail parks play the role of everyday shopping centres with a basic retail offer and a limited fashion and food sector. The tenants that are most frequentlt present in retail parks are: Biedronka, Media Expert, Jysk, Pepco, Martes Sport, EMPIK, Rossmann, KIK, Takko, Deichmann and CCC. The traditional set of tenants in retail parks in small cities is made up of grocery, electronic equipment, furniture, sports, multimedia, health and beauty, fashion and footwear stores with a discount profile. Vendo Park Nysa, where H&M and LPP group have opened their shops, is a good example of a retail park where the fashion offer is extended in contrast to most of these kinds of projects. There are also some attempts for retail parks to include a leisure & entertainment function HopStop Zamość features a Balaboom bowling club and Twierdza Kłodzko has a Cinema 3D and Jupi Park. One of the few examples of restaurants in retail parks in small cities are Green Lemon Bar in Dekada in Nowy Targ and United Chicken in Tu i Teraz retail park in Ełk. Ocassionally, there are also pharmacies, shops with children accessories, pet shops, banks, GSM points and services. 6

7 Rental rates Due to their specification, retail parks offer far lower rental rates and other leasing costs than traditional shopping centres. The rates in agreements signed for 5 to 7 years differ slightly depending on the sector. The main difference depends on the unit size. Service charges in retail parks are also lower than in traditional shopping centres rates range between EUR 1-2.5/m 2 /month and some tenants are able to negotiate discounts or freezing the monthly costs at an agreed level. Marketing costs are often included in rent and tenants are obligated to pay a onetime fee (as an additional monthly rent) on account of events related to the opening of the facility. Many tenants are able to obtain from the developer financial contribution of EUR /m 2 for unit arrangements. Top 5 - Attractive features of retail park for tenants 1. Location in the close proximity of intensive traffic, with good access and visibility 2. Strong food operator in the park or nearby 3. Strong tenant-mix 4. Overall costs of renting are lower than in a traditional shopping center 5. Experienced developer (parks portfolio) RETAIL PARK RENTS IN CITIES BELOW 100,000 INHABITANTS (EUR/M 2 /MONTH) Grocery ( m²) Electronic equipment ( m²) Household equipment ( m²) Fashion (above m²)* Discount fashion ( m²) Discount footwear ( m²) Health and beauty ( m²) Sport ( m²) Multimedia ( m²) Other ( m²) *rents usually based on 6-11% rate of turnover 7

8 Tenants point of view * The traditional set of tenants in retail parks in small cities is made up of grocery, electronic equipment, furniture, sports, multimedia, health and beauty, fashion and footwear stores with a discount profile. HOME APPLIANCES MULTIMEDIA DISCOUNT FASHION DISCOUNT FOOTWEAR HOUSEHOLD EQUIMPENT SPORT HEALTH&BEAUTY OTHER Preferable format of a retail site in a small city Good retail park which dominates the market due to a lower leasing cost. The possibility of generating larger EBITDA is important, not the format of the site Both retail parks and traditional shopping centers Retail parks due to better shop exposition Profitability is decicive; in small cities the choice of sites is limited. Best sites only, it does not matter whether it is a shopping centre or a retail park Shopping Centers, with some exceptions Not the format but the location potential and profitability are important Most important features of a park s attractivenes from the tenant s point of view Good communication, car park, near a food operator, possibility of showing a logo and goods outside Intensive traffic, good access and availability for pedestrians, close proximity of residential area and traffic hubs, visibility. Strong food operator, strong tenant team, developer s experience (site portfolio), possibility of showing goods, lower costs than in a traditional shopping center. Good location and visibility, easy access and big parking lot, strong tenant team, lower cost than in a traditional shopping centre, the downside is discomfort of doing shopping and lower sales in winter. Good location, high traffic, good accessability and availability for inhabitans of the city and its surroundings, team of tenants (food shop, children, health&beauty). Natural traffic, availability for pedestrians and cars, big parking area, attractive food operator. Main project in the city, located nearby a residential area or easily accessible, strong tenantmix, project size, parking spaces minimum, experienced developer. Good access, communication, parking area, lower maintenance costs, big shop windows, good architectural project, simple rules. Is the presence of a food operator essential for a park? Yes, because of generated traffic Yes, unless a big food store is already located nearby. Yes, in the park or within 150 metres from the site Yes, in the retail park or in close proximity Yes In locations with natural traffic it is not necessary, but in other cases yes. Absolutely yes Absolutely yes, in the retail park or in its close proximity. Is the presence of a gastronomy operator essential for a park? No No, unless the park is located in a big residential area. No matter No, but desirable No No, but in smaller cities it is desirable. Not needed, depends on the size of the site. Not necessarily Is the neighbourhood of another retail format (outlet center for example) advantageous? No, an outlet center makes chaos with prices. Rather not, because it would lead to chaos in prices, especially in the case of an outlet center. Yes, unless it collides with the activity of shops in the park, possible positive value. Rather not, because a site, having a greater power of attraction (outlet center for example), would dominate the park. Yes, if the neighbour generates additional traffic Neighbourhood is excluded because of the price policies of outlet centers. Yes, because of big responsibility. Yes, if it is a complementary object and it generates additional traffic. Rent to sales ration in retail parks is about 5-10% Cost of local space arrangements in a retail park is about 30% lower than in a traditional shopping centre. Additional costs in a retail park are about 50% lower than in a traditional shopping center. *based on interviews with selected retail chains representatives - tenants in small cities

9 Small retail parks as an investment product The volume of transactions of retail parks in cities of fewer than 100,000 inhabitants from 2010 to 2015 amounted to EUR 82 million. They constitute 12% of total value and 30% of the general number of retail project transactions in these locations. Between 2010 and 2015, nine transactions worth EUR 82 million were signed and constituted 14 retail parks totaling 85,000 m 2. Four transactions were connected with a property portfolio, from which the most spectacular was the takeover of 3 Elbfonds retail parks by Marcredo Fund amounting to EUR 32 million in The sellers were mainly developers with Polish backgrounds. Marcredo Fund from Germany was the most active buyer with 40% of transactions, followed by individual investors from different parts of the world 27%, and institutional operators from the USA, the UK, Belgium and Poland. Yields stood at % and reflected the level of risk and ROI accepted by investors. The average price for a square metre totalled approximately EUR 1,100. The best yields, and thus the highest prices, are in projects which: are located in well-communicated part of a city, in places of relatively high purchasing power and a young age structure of inhabitants, are leased by reputable tenants for long-period (over 5 years), without the possibility of early termination by the tenant, obtain institutional leasing agreements with rental rates denominated in euros, indexed once a year according to EUR MUICP, services charges and media fees totally covered by tenants, have payment of tenants liabilities secured by bank guarantees and deposits, are constructed in modern technology by a reputable general contractor with current as-built guarantees. Investments in retail parks definitely have more strengths than threats. More and more retail parks will be offered for sale. At the same time, investors who have started to create new assets for sale and profit will be more active. We estimate that 2016 will be a record year in terms of the volume of transactions in Poland since SELLERS OF RETAIL PARKS IN CITIES UNDER 100,000 INHABITANTS (SELECTED TRANSACTIONS) Seller No. of sold objects Space (m²) Price (million EUR) Elbfonds 3 29, E. Leclerc 2 24, Rank Progress 2 13, ZRB Kampka 1 4,000 5 PA Nova 2 4,000 4 INVESTORS (SHARE IN TRANSACTION VOLUME ) 15% 10% 5% 4% Marcredo Fund 27% 39% Private investors Blackstone Portico Investment Peppercorn Properties PKO TFI VALUE AND NUMBER OF RETAIL PARK TRANSACTIONS IN THE CITIES BELOW 100,000 INHABITANTS Value (EUR million) Number of transactions 9

10 Retail parks as an investment product in cities below 100,000 inhabitants Strengths Relatively low values of transactions - price is not a barrier to enter the market by most investors, also for private people, Often, the project has a monopolistic position in the local retail market, Relatively low rental rates and operational costs small exposure to costs and a rent discount, Reputsble tenants, Uncomplicated property management, Weaknesses Lower comfort of doing shopping than in a shopping centre due to the influence of weather conditions on tenants turnover, Higher yields because of low value of the asset, higher investment risk (connected with the small scale and volume of a project, market potential, tenant mix), as well as lower real estate liquidity, High sensitivity to new projects constructed in the same city, Limited potential of small city development. Relatively higher yields from the investment in comparison to a classical shopping centre. Increase of demand for retail parks among institutional investors yield compression, Value increase by creating critical mass and increase in the value of single assets (portfolio construction of retail projects), An increasingly popular format among customers, dynamically developing supply of new projects. New investments, development of traditional shopping centres in neighborhood, Depopulation of smaller cities, purchasing power decrease, Increasing tenants claims connected with participation in costs increasing of investor s cost. Opportunities Threats 10

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12 Across Retail is a comprehensive set of services provided by Colliers for the owners and tenants of retail schemes that includes advisory, commercialisation and management. To answer your specific needs on the retail market we build advisory teams focused on achieving your business objectives. Depending on the stage and project nature, they can include professionals with years of experience in the following areas: strategic advisory valuation of retail properties retail leasing services investment advisory tenants services project management market research and analysis LEED & BREEAM certification property management marketing asset management With this approach we will support you at every stage of your project! CLICTK AND FIND OUT MORE by Colliers International IF YOU HAVE ANY QUESTIONS REGARDING THE REPORT, FEEL FREE TO CONTACT: Marta Machus-Burek Director Retail Agency marta.machus-burek@colliers.com Katarzyna Michnikowska Senior Analyst Research and Consultancy Services katarzyna.michnikowska@colliers.com Colliers International Poland Pl. Piłsudskiego Warszawa poland@colliers.com Andrzej Miazga Senior Associate Investment Services andrzej.miazga@colliers.com Copyright 2015 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

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