Pandemic: retail parks and the food industry on top

Based on nearly a year of experience and observations of trade during the pandemic, as well as on the first reports for 2020, we may attempt to assess the opportunities and threats that appear before the industry in the coming months or even years. First of all, small-sized retail parks and the food industry emerged from the crisis unscathed. “Does this mean a crisis of shopping centres and a return of shopping streets to good graces?” wonders Marcin Rudziński from Higasa Properties.

We have recently given several interviews in which we shared our observations about the industry in the time of a pandemic with, inter alia, the readers of Property News and Rzeczpospolita. In the following post, I will try to collect individual issues in order to create an even wider picture of the retail market in Poland, and thus of commercial properties and their future.

Let us start by trying to show how the pandemic affected the retail industry. According to the calculations of the Polish Council of Shopping Centres, the three periods of shopping centre closures amount to over PLN 38 billion in losses. These are figures for 2020. In January, due to the lack of sales, this amount increased by another PLN 6 million. The owners of centres lost approx. PLN 5 billion, i.e. 45% of their annual revenues, due to the lack of rental proceeds.

It is worth adding that some shopping centres, in agreement with financing institutions, such as banks, took advantage of “loan payment holidays” or the suspension of interest instalments. Nevertheless, the losses are huge.

What is the future of shopping centres?

In the case of real estate, the most important thing is location, and in the case of shopping centres, the so-called ‘catchment’. Looking at the Tri-City market, which we can best observe due to the location of our headquarters, shopping centres located in strategic locations, with great impact, with an established position, such as Riviera in Gdynia, Forum or Galeria Bałtycka in Gdańsk, will survive and will continue to function. The same will be true in Warsaw, Poznań or Wrocław and other cities. From the observation of the trend and the behaviour of young people, I conclude that the entertainment model, including “food halls”, will be the strength of shopping centres as places to spend free time with family and friends. Our climate has a long period of unfavourable weather, and in addition, after the pandemic, we are probably tired of spending time at home. We can say that we have developed a “hunger for normality”, including a longing for old habits of spending free time, for example, in a shopping centre, with its package of “entertainment-food-shopping”.

In countries where the market is highly developed, shopping centres continue to function, for example, as showrooms combined with a catering and entertainment function. Even a tycoon like AliExpress, a few years ago, despite dominating the internet market, built a shopping centre. Many shopping centres that have lost their commercial function are being transformed into restaurant complexes or office centres. The pandemic itself will not cause a retreat from shopping centres, but the passage of time, along with the change of shopping habits, the natural aging of objects, and even fashion, will force certain changes in their functioning and purpose.

The lockdown did not paralyse all trade

Facilities of up to 2,000 m2, including retail parks, small grocery stores, drugstores, as well as electronics and household appliances stores, were operating without downtime. I mention these industries for a reason, because last year it was the “big three” when it comes to the increase in the frequency of purchases. The results of the food industry are particularly impressive. According to the PWC report “New image of the Polish consumer”, the amount of expenditure on food increased by 45%, and 50% of respondents declare that the expenditure has not changed. It is also the only category in which the frequency of purchases has not decreased. And this is a category in which, in the era of a pandemic, shopping is still more likely to be made in stores than online. The second largest increase in the frequency of purchases in the trade segment is health and beauty products and services. Here, the “jump” concerns 32% of those asked, with 52% maintaining the same regularity.

This information is important to us and, above all, to our investors. Investing in commercial real estate is stable because, so to say, business is booming. Basic need-related industries were not paralysed by the pandemic, as was the case with, for example, tourism. Long-term rental contracts ensure a steady rental income, of which those who profit from renting apartments cannot be sure. Retail chains are constantly developing, pursuing ambitious expansion, so more stores are opened. Some tenants are ready to sign contracts for 5 or even 10 years.

Expansion of chains is gaining momentum

Stokrotka announced that this year it intends to open 100 new stores (it also had such a plan in the previous years). Let us assume, theoretically, that the same number of stores (and in practice, it will be a higher number) will be opened by Rossmann, Pepco, Biedronka, and Hebe. We can add to this the announced 50-100 new stores per year from KIK and Media Expert, plus a few other players, which gives, in theory, the number of several hundred new stores throughout Poland. And we only mentioned about 10 brands.

Retail parks and the return of shopping streets

The rise in popularity of retail parks coincided with a pandemic. But it was not a sudden process, as retail parks, especially the smaller ones, ranging from several hundred to several thousand metres, and from two to a dozen or so shops, were doing well even before the events of last March. The spring lockdown and closure of large commercial facilities only reinforced this trend. Most of our tenants, which are currently leading retail chains on the market, have increased their turnover last year. Their expansion plans for this year are also ambitious, and the retail park market is not yet saturated. Moreover, in the face of inflation and zero interest rates, we observe a noticeably growing interest of investors in retail parks.

I believe that in cities there should be a return of shopping streets to good graces. The retreat of brands which started many years ago in favour of shopping centres was stopped last year. In the opinion of many people, relying only on prestigious facilities was a mistake. In order to ensure business liquidity, it would be much safer to choose diversified locations, both in large shopping centres and smaller facilities as well as shopping streets, which may be attractive, for example, to clothing brands. This year will be a key year for the development strategy, and within twelve months, we will probably start to observe the effects of the first decisions.

Given the basic assumption that groceries and hygienic articles are essential for functioning, it is highly probable that the intensive expansion of these industries will continue in Poland for many years to come, then its pace will slightly slow down. The retail park sector is still developing, which makes it an attractive target for investors and a source of stable, predictable profits.


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