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Warsaw Retail MarketView CBRE Global Research and Consulting Q3 2014 NEW CENTRES UNDER CONSTRUCTION AVERAGE RENTS NEW BRANDS GENERAL OVERVIEW Market trends Polish economy Q3 2014 Population The GDP growth amounted to 1.6% in 2013, tied for seventh highest in the EU, although the result was the lowest since 1.4% tallied in 2002. The Central Bank of Poland announced that the country’s GDP grew at the rate of 3.3% at the end of the second quarter of 2014. Initial projections indicate that the GDP growth will fall below 3% in the third quarter, though the 3.2% Y-o-Y growth forecast for the year is expected to be met. A general improvement of the labour and investment markets is considered a major catalyst for this development. Inflation has remained persistently low at a level of -0.3% in the third quarter. The reference interest rate have been decreased in October and currently stand at 2%. In the first three quarters of 2014, investment volume in the commercial property sector amounted to nearly EUR 2.1 billion, including over EUR 412 million in the retail sector. The most significant retail transactions took place in the first half (Poznan City Center, Nova Park, Galeria Mazovia, Galeria Hexa). Yields in the retail sector remain stable and amount to 5.9% for prime assets and about 7.5% for retail warehousing schemes. The total modern retail space in Warsaw agglomeration amounts to 1.4 million sq m. From the several types of schemes present on the market, the most popular are shopping centers with hypermarket or supermarket as an anchor tenant, however the most attractive for retailers are third generation schemes (Zlote Tarasy, Arkadia, Galeria Mokotow). For the new retailers entering the Polish market with the policy to locate their stores in one of the prestigious locations, the number of options is limited. In terms of available space in modern shopping centres, vacancy rate level in general amounts to 2.7%, however it varies depending on the shopping centre category. The highest rate is registered in second category schemes, where 40-50% of the total GLA of the scheme are retail units, typically complemented with a supermarket or a small hypermarket. The availability of retail units in prime shopping centers is limited only to single units. On the other hand, the vacancy in specialized projects, such as outlet centers, theme centers or retail park is relatively higher than average. In terms of new developments, there are three new centers currently under construction (Galeria Lopuszanska, Ferio Wawer and Royal Wilanow), two extensions (Factory Ursus and Wola Park) and additional six under advanced conceptual works. In addition to modern retail schemes, locations along high streets are becoming popular. Among the best and the most recognizable Warsaw’s high street locations are Nowy Swiat Street, Trzech Krzyzy Square, Mokotowska and Chmielna Streets, each having its unique character and tenant mix. 38.5 m GDP growth (2015 forecast) 3.2% CPI (y-o-y, September 2014) -0.3% Reference interest rate 2.0% Unemployment rate (September 2014) Source: GUS, NBP, Oxford Economics 11.5% Warsaw retail market Q3 2014 Total stock (sq m) 1.4 m Completions (sq m) 0 Under construction (sq m) 58,780 Vacancy rate 2.7% Retail investment volume (YTD) EUR 412.5 m Total investment volume (YTD) EUR 2.1 b Market outlook 2015 Outlook 1 New supply Vacancy rate New entries Average rents Prime yields Source: CBRE Q3 2014 Warsaw Retail | MarketView RETAIL MARKET Retail indicators Shopping centre supply in Warsaw (in mln EUR per 1,000 inhabitants) (’000 sq m) Planned Under construction Consumer spending per capita Household disposable income per capita Existing 9 8 7 6 5 4 3 2 1 0 180 160 140 120 100 80 60 40 20 0 Source: CBRE Source: Oxford Economis, October 2014 Prime and average rents Shopping centre vacancy in Warsaw (EUR/sq m/month) (by generation) Shopping centres High streets Prime 80 - 110 70 - 85 Average 25 20 I generation II generation III generation Specialized Outlook Source: CBRE 0% 1% 2% 3% 4% 5% 6% Source: RRF, CBRE Under construction Building permit Planned Royal Wilanow Fabryka Wolomin Forum Bemowo Ferio Wawer Galeria Kabaty Hala Koszyki Galeria Wilanow CEDET Galeria Bialoleka Cenrum Marszalkowska Wilanow Park Factory Ursus (extension) Galeria Lopuszanska 2 Wola Park (extension) 7% Q3 2014 Warsaw Retail | MarketView WARSAW HIGH STREET MAP Nowy Swiat Chmielna Mokotowska Marszalkowska Trzech Krzyzy Square Konstytucji & Zbawiciela Squares Aleje Jerozolimskie Chosen high street stores 3 Tenant Category Tenant Category Burberry Fashion Muji Accessories Smyk Children & Maternity Hagen Dazs Cafes, restaurants Louis Vuitton Fashion, accessories Charlotte Cafes, restaurants Zien Fashion Frey Wille Jewellery COS Fashion Zara Fashion Q3 2014 Warsaw Retail | MarketView RESEARCH DEFINITIONS Retail space GLA - gross lettable area in sq m refers to the area leased to tenants and includes any other construction elements. Shopping gallery - part of a shopping centre encompassing a number of adjacent shop units that are all accessible from a mall. Hypermarket - either a stand alone or part of a shopping centre, large-scale store (with a minimum GLA size of 2,000 sq m) offering a wide variety of convenience and household products. Shopping centre - a scheme that is planned, built and managed as a single entity, comprising units and 'communal' areas, with a minimum GLA of 5,000 sq m, usually a group of at least 10 shops and service units. Shopping centre schemes can vary in terms of the concept, from the centres where a hypermarket occupies 40-50% of the total GLA to the schemes dominated by other than retail commercial functions. Factory outlet - is a shopping centre where manufacturers and retailers sell their merchandise at discount or gross prices. Retail park - is a consistently designed, planned and managed scheme that comprises of medium- and large-scale specialist retailers (“big boxes” or “retail warehouses”) as well as a shopping centre. Prime headline rent (in Euro per sq m) represents the top open-market tier of rent that could be expected for a unit of standard size commensurate with demand in each location, of highest quality and specification and in the best location in a market at the survey date. For purposes of this report, a retail unit of standard size is assumed to be around 100 sq m GLA. Prime yield (in %) calculated as net rent / net price (excl. transaction costs) = cap. rate. A prime yield is derived from the gross rental income (before deducting all nonrecoverable expenditures) divided by total purchase costs (excluding price, costs and taxes). The prime yield represents the yield that an investor would receive when acquiring a grade/class A building in a prime location, which is fully let at current market value rents. Prime Yield should reflect the level at which relevant transactions are being completed in the market at the time but need not be exactly identical to any of them, particularly if deal flow is very limited or made up of unusual one-off deals. If there are no relevant transactions during the survey period, a hypothetical yield should be quoted, and is not a calculation based on particular transactions, but it is an expert opinion formed in light of market conditions, but the same criteria on building location and specification still apply. Investment volume (in EUR million) - investment transactions only. For this reason transactions by owner-occupiers are excluded from investment volumes. Transactions involving owner-occupiers, retailers or corporates buying for the purpose of owner-occupation are not seen as investments deals. We also do not include pure land deals. CONTACTS Research & Consultancy Retail Agency Joanna Mroczek Beata Kokeli Director Rondo ONZ 1 00-124 Warsaw t: +48 22 544 8061 e: [email protected] Senior Director Rondo ONZ 1 00-124 Warszawa t: +48 22 544 8033 e: [email protected] Capital Markets Magdalena Fratczak Director Rondo ONZ 1 00-124 Warsaw t: +48 22 544 9304 e: [email protected] Mike Atwell Senior Director Rondo ONZ 1 00-124 Warsaw t: +48 22 544 8070 e: [email protected] + FOLLOW US LINKEDIN FACEBOOK WWW.CBRE.PL Research and Consulting This report was prepared by the CBRE Poland Research & Consulting Team which forms part of CBRE Global Research and Consulting – a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. 4 Disclaimer CBRE sp. z o.o. confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals, all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.