Retail markets around the world are currently in good shape. A big and further increased optimism on the demand as well as the supply side supports this positive development in almost all markets that are relevant for investments. Especially in Germany and Poland, who are ranked at the top of the “Global Retail Attractiveness Index” in Europe, contribute significantly to the above-average market level. The Polish retail market shows the most dynamic development of all European countries included in the index. But what are the fundamental reasons for this dynamic trend?
Retail sales grew by 7.3% to the end of December 2017, reports Cushman & Wakefield in the latest “Poland Retail Snapshot”. Key market drivers are the country’s unemployment rate which is at the record-low level of 6.3% (Feb 2018) and rising wages (a 7.3% y-o-y increase). In terms of supply after a relatively busy end of 2017, the first quarter of 2018 saw only 52,600 sq m delivered. At the end of Q1 2018 the total retail stock in Poland exceeded 14.3 million sq m.
The retail development pipeline stands at more than 500,000 sq m, with nearly 80% to be delivered this year of which nearly 60% will be in major agglomerations. Major retail schemes scheduled to open in 2018 are Forum Gdańsk with 62,000 sq m and Galeria Libero in Katowice with 45,000 sq m. We will also see an increase of importance of smaller towns and municipalities with less than 100,000 inhabitants, where over 30% of the new retail supply for 2018 is scheduled to be delivered.
In Q1 2018, the retail transaction volume hit € 1.78 bn and accounted for approximately 87% of total investment volume (€ 2.05 bn). The outstanding investment volume was primarily due to the closing of the M1 Portfolio, consisting of 28 retail assets located across the country, the largest retail portfolio transaction on the Polish market.
The M1 Portfolio was acquired by Griffin Real Estate for ca. € 1 bn. As a part of separate agreement, EPP purchased 12 retail assets from the M1 Portfolio from Griffin. The first tranche of the EPP transaction including M1 Kraków, M1 Czeladź, M1 Łódź and M1 Zabrze took place in Q1 2018 for €358.7 m. Another transaction which added to the record volume in Q1 2018 was the acquisition of Galeria Katowicka by Employees Provident Fund of Malaysia for ca. €300 m.
Prime retail assets will continue to benefit from below average vacancy rates and stable rental levels. As major brands consolidate their occupation into larger units in the best centers or seek further incentives and when on turnover based rents. During 2018 the market will also have to contend with the phased introduction of Sunday trading restrictions, which is expected to redistribute the weekly timing and, to a lesser extent, the location of sales, and a new property value based “minimum income tax”.