Retail sector - Summary of 2023

Retail sector

Throughout 2023, the Polish retail property market presented its participants with a number of investment challenges. First of all, it is important to emphasise that retail parks remain the dominant format in terms of supply and transactions. As an asset class, shopping centres attracted interest mainly from the so-called opportunistic investors.

Analyses regarding shopping centres are increasingly often concerned with the possibility of their conversion. This situation is certainly influenced by high maintenance costs, which exert pressure in relation to the facilities’ operating results. However, this is not the case with retail parks – this asset class arouses interest among investors representing all investment profiles. Despite a significant year-on-year decrease in transaction volume, retail parks continue to be in high demand among buyers.

The key factor in the development of retail properties is the attitude of tenants, who, despite the declaration of strong expansion, were rather cautious in this respect in H2 2023. In our opinion, the time required for the commercialisation of retail parks has thus been extended.

Developer margins are currently under strong pressure. The higher costs of land acquisition and rising construction expenses are not accompanied by rent increases or retail property valuations. Consequently, instead of selling completed projects, many developers decide to wait for more favourable valuations in order to meet the set profit targets. In 2023, the supply of new space in the retail property segment was dominated by retail parks. In fact, the only new shopping centre commissioned in 2023 was Bawelnianka – a facility with a floor area of 23,000 sqm, located in Belchatow. By contrast, the supply in respect of retail parks in the same year amounted to about 500,000 sqm. As a result, this format already accounts for 17% of the total stock of modern retail space in Poland.

Retail parks also dominate in the investment market. Without a doubt, the high cost of capital, which significantly affects retail property valuations and directly contributes to the decline in transaction volume, still poses a considerable challenge. Nevertheless, demand for retail parks remains at a very high level. Currently, it appears that the market consensus in terms of capitalisation has been set at around 8%, with possible deviations of 0.25% in either direction. When it comes to retail space, the highest demand is for facilities offering a GLA of 5,000-10,000 sqm, with rents denominated in euros, intended for chain tenants and located in cities with more than 20,000 inhabitants.

What to expect in 2024? First and foremost: stabilisation. In our opinion, leasing activity will return to the level observed in the first half of 2023. We also believe that the expense associated with borrowing will decrease in 2024, leading to a higher transaction volume. Many of the ongoing negotiations are likely to result in the conclusion of sales agreements in the coming months.

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Retail sector - Summary of 2023

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