edition:
polskienglish
log in | register

reklama

Special supplement for edition 11 (215)
November 2016
Interview

Re-imagining the retail asset scene

Anna Pakulniewicz

Re-imagining the retail asset scene
James Chapman, MRICS, a CEE capital markets partner at Cushman & Wakefield

A lack of new retail schemes in the CEE region has prompted investors to seek out other opportunities. And there are quite a lot of these, as shopping habits change. ‘Eurobuild CEE’ sat down with James Chapman, MRICS, the partner for CEE capital markets at Cushman & Wakefield, to talk about the market from the investors’ perspective.

Anna Pakulniewicz Eurobuild Central & Eastern Europe: Is the CEE region still treated by international capital as a single entity?

James Chapman, MRICS, partner, CEE capital markets, Cushman & Wakefield: Poland is still the dominant force within core Central Europe, but Hungary and Romania are back on the agenda. You can also see this for retail investment activity in Croatia, Serbia and Slovenia, and this is part of a bigger trend, which is especially related to the inflow of South African capital. However, the potential in these countries is still pretty small.

So how are things with the core of the market?

The Czech Republic is having a very strong year now. Slovakia is also back to good levels of activity, Hungary is as active as it has ever been in terms of occupier demand and investor demand is following, whilst the interest is growing in Romania for high quality assets. Retail investment is very much in demand for prime assets, but the definition of prime is becoming more liberal. New sources of capital are talking about Central Europe, which means that the definition of prime is no longer just Germany or the UK. I think that especially Poland and the Czech Republic are now accepted by many main European clients as prime for best-in-class retail. For such assets, there is no shortage of capital and we see this continuing to grow. But there are situations in the market with secondary assets, where you have a willing seller, the asset is priced at a sensible level, but you simply do not have the willingness of many with the capital to invest in it. This is a trend that we can also see elsewhere in Europe and it reflects the evolution of shopping centres. Somebody once used a rather delightful phrase on me in reference to Poland, saying that the market is not oversupplied, but “under-demolished”. There is real truth behind this and it could also be applied to the wider market. We haven’t yet got to the stage where we have really seen the repositioning of older assets and investors are becoming rather wary about investing in yesterday’s product.

What form should best-in-class retail take?

Investors are not completely blind to what is happening within the sector. So this is why they have a fundamental aversion to investing in assets that have maybe been sensible ones for the past ten to twenty years, but simply have no place in the future. They have pockets of capital and are getting excited about the process of re-imagination. But they are not going to do this directly, as they do not have the infrastructure and expertise on the ground – and this is where there is a gap in the market at the moment. I think we will increasingly see examples of investor capital coming together with retail specialists to create owners that are capable of executing this re-imagination of retail across Poland.

What about the rest of the CEE region?

The Czech Republic is actually more saturated, as it is further along the development curve, as are arguably Slovakia and Budapest, and they are all at the level where, for different reasons and at different paces, they have almost filled all the obvious gaps in the market. But development does not just stop. There are still new projects being built in the US and the UK – markets that have been developing for 100 years. So you have to keep on re-defining things. This is the next big opportunity for Central Europe and we will see some great companies emerging out of this phase. It will be over the next 15 years that we will be seeing this happening.

Whats on the list of foreign capital?

If you look at the most core money in the market – German insurance money, regulated funds – they are not necessarily looking at starting a revolution. They are looking for very defensive, strong, dominant schemes. This is where the activity is at the moment, but there are only a limited number of assets that have all of these characteristics…

Which ones?

Well, if you look at the major cities, it is really just the top five. Maybe it can go beyond this in exceptional circumstances, but generally you can limit it to Poland’s top five cities and to the best two or three schemes in each of those cities. But take a look at who owns those, for example, in Warsaw: Złote Tarasy, Arkadia and Galeria Mokotów. These are all owned by Unibail and form part of their long term hold investment strategy, so they are not available to buy in the short term. In the other cities many of the strongest assets, like Riviera in Gdynia and Bonarka in Kraków, have already been traded for long term holds. There are actually very few left to transact. So we could conclude that the investment volume will drop, but it is important to recognise the relevance of the second tranche of the market active in cities above 200,000 people and in some cases even 100,000 people – and Poland has 40 such cities. This is creating a lot more opportunity, for instance, Jantar in Słupsk, sold earlier this year, and Ferio in Konin. These are not opportunistic investors, they are looking for centres that dominate their catchments and are defensive plays. I think we will see more equity coming into platform deals where there are the management and development capabilities to execute repositioning. These could involve buying an old scheme, demolishing it and building something else that could redefine the city. This is what has just happened in Poznań, with Posnania opening in October. Nobody would have said on paper that there was room for a 100,000 sqm shopping centre, but now it can become one of the strongest shopping centres in the city. This is not guaranteed, but such a possibility exists. How many other potential “Posnanias” are there in Poland? – where you can come to a place that is perceived as a developed city and redefine the way that shopping works in that city.

Could this happen across the other markets as well?

With the Czech Republic, you have just eight cities with over 100,000 people, but they are more affluent, so the opportunities in these eight cities could be greater than in each of the forty Polish cities of a similar size. However, by definition in a smaller market the opportunity is smaller overall. But considering the proximity to Poland there is the potential to turn this into a Central European story. If you’ve got a management platform in place in Poland that is exceptional at re-imagining retail locations there is no reason why you cannot do the same in the Czech Republic and then extend it to Slovakia, or other parts of the region as well. Many retailers and players are similar, so I think you will see groups having a pan-Central European strategy to help them build up the scale. So it’s actually coming together quite nicely.

Where is there room for potential Posnanias across the whole region?

What could drive “Posnanias” elsewhere are the changes in cities. It is not a common thing in Western European cities to see fundamental changes in locations, but this is happening in Central Europe. For me the most obvious candidate would be Łódź. The whole city is being transformed and it is maybe the sleeping giant city of Central Europe in terms of opportunity. Now most people are saying that we already have a very strong retail scheme there: Manufaktura, and they don’t see any weakness in its position. But changing cities create opportunities. So such a scheme would not necessarily be at the expense of Manufaktura, because there might just be opportunity elsewhere in the city.

So what is the capital saying to us?

If you look at the global capital sources, they are looking at where the growth is – and that growth is in Central Europe, there’s no question about that. That allows them to take a longer term view and to be more creative in how to re-imagine these locations – which is important if you’re doing something quite fundamental. You’re not going to be able to do this within three years. If this was US private equity money, then you’d have to be able to do this within three years, which generally means bolting on an extension or doing something on a much smaller scale, in terms of the reinvention of schemes. But we are talking about longer term money, so that’s positive because I think what they are actually going to do will be more revolutionary.

Newsletter
Want to know more? Sign up for the Newsletter


reklama
Special supplements
reklama

conferences

The 25th Annual Property Market Convention
Eurobuild Awards 2019
Newsletter
Receive all the latest information from the world of real estate by e-mail
reklama

reklama
About Us Contact Privacy Rules Archive Newsletter
Copyright 2017 EuroCEE. All rights reserved.