SCF Magazine, Retailnet.pl/September 2022
Interview with: Jacek Wesołowski, Managing Director Trei Real Estate Poland
The real estate market is facing difficulties that herald an investment slowdown, is the retail park sector also feeling these changes?
It seemed that the market was ready to go forward again because the changes brought on by the pandemic had been worked through and it looked like we were in a position to move on. However, the first half of the year, which was dominated by the war in Ukraine, was not easy for the entire real estate sector. Rising construction costs and material prices, shortages of raw materials and components, and difficulties with subcontractors had a great impact on the real estate market. At one point, the price increase was so great that we couldn’t fine tune our budgets to receive a guaranteed return on our development investment. The costs were unacceptable.
Does this mean that you have stopped building?
No, we have not stopped. We have continued with the investments we had started earlier, although the market situation, especially the high cost of contractors, has caused delays in starting new projects. Currently, prices are returning to previous levels, and we can carry on with our investment plans. In the first half of the year, we managed to build and 100 percent commercialize Vendo Parks in Otwock and Skarżysko-Kamienna, which we opened over the summer. We also have projects under construction in Mielec, Zambrów and Cracow. In the near future, we are aiming to start further constructions in locations including Łapy and Gorzów Wielkopolski, where we acquired a plot this year. We are about to launch one of our largest retail developments – Vendo Park in Szczecin, which will open as early as next year. This retail park has been designed in the “power center” formula, will consist of a retail section and an OBI store, with the entire facility providing 24,000 sqm of space.
You talked about the difficult market situation in the past tense, does this mean that stabilization is ahead?
I think we are on the road to stability, although this may still prove to be difficult to achieve. In fact, we should rather be prepared for more changes. In some areas, the situation has calmed down, for example, steel prices, which more than doubled in cost hitting almost PLN 10,000 per ton, have now returned to earlier levels. There were also concerns about shortages in the availability of raw materials, such as the aforementioned steel, as well as aluminum and mineral wool, but these concerns have now receded. What we are currently facing are increased fuel costs and rising electricity prices. The latter issue has a huge impact, not only on the construction processes, but especially on the operation of the property in question and the tenants, who are additionally burdened by the pressure of salary increases for employees. As an owner and manager of retail parks, we see no opportunity for significant rent increases in our facilities, nor do we have room to negotiate rent reductions. To further develop our properties, we are looking for other solutions to reduce costs. One of them involves discussions with tenants regarding the fit-out of premises. We used to be responsible for the comprehensive fit-out of stores, but now more and more tenants are making this type of investment themselves.
Are tenants still interested in retail parks?
The entire market has noticed that there is great potential in retail parks. The numerous lockdowns imposed on the retail industry and the shift to home-office for many months have caused us to live more locally, and consequently, our shopping activity has moved closer to home as well. Consequently, there is interest in convenience centers and retail parks, closer to home – both among customers and tenants. The brands present in our Vendo Parks are showing great interest in further locations. The best example of this is the fact that before the opening of Vendo Parks in Otwock and Skarżysko-Kamienna, we had all tenants in both facilities. In fact, interest has been so high that we are already thinking about expanding the latter project. We are also negotiating with new brands that want to enter the parks, including a drugstore chain which is making its debut in the Polish market. What’s more, we are increasingly expanding the offer of Vendo Parks with DIY stores, and their owners, such as Castorama, are creating concepts dedicated to retail parks. These are smaller formats of renovation and construction stores of about 2,000 – 3,000 sqm.
Will there be significant changes in the development of retail parks in the Polish market?
Yes and no. We continue to focus on locality in the construction of such projects. Which means that we focus on locations in smaller cities. In the more than nine years that have passed since we built the first of our thirty retail parks in Poland, we have continued to improve our projects and gain valuable experience, which we have used in the development of the Vendo Parks chain. In the past, the greatest demand was for smaller properties, developing one building of limited space and with specific tenants. Currently, retail parks are evolving into regional shopping centers. We are enriching their offerings with food services, DIY stores, as well as parcel lockers and ATM machines.
The second direction we will follow is the requirements of sustainable construction and responding to environmental issues. Trei is betting on the development and implementation of ESG strategies and green solutions in our projects. On top of this, retail parks have become an attractive investment asset, and with increased interest from foreign funds, it is becoming more common to think about the projects under development from a long-term perspective. Today, it is already clear that facilities that do not meet environmental standards will not be first-choice assets. Green certification in parks is no longer a differentiator, but a requirement. As a result, we too are starting to certify Vendo Parks under the BREEAM system. In addition, where possible, we rely on renewable energy sources, such as at Vendo Park in Skarżysko-Kamienna, which is powered by energy from photovoltaic resources.