Promotion photoHadley Dean – Betting on Polish retail
Hadley Dean, CEO of EPP, sets out his view on the future for retail real estate in Poland and further afield in CEE.
November 21, 2018Real Estate
Hadley Dean, CEO of EPP - the largest retail landlord in Poland - sets out his view on the future prospects for retail real estate in Poland and further afield in CEE. The fundamentals, according to Dean, are robust: the country has an emerging middle class with rising disposable income. What is more, Poles actually like going to shopping centres - they see it as a leisure activity. And the threat from e-commerce - that has impacted US and UK retail - is not likely to materialise anytime soon, given the relatively low purchasing power of CEE consumers balanced against high delivery costs. All of which makes retail the best bet when it comes to choosing a real estate asset class in which to invest, says Dean. Outside of Poland, Prague and Bucharest have compelling stories, while Russia presents real opportunities - for the brave.
What are the fundamentals behind the retail sector in Poland?
When you look at retail in Poland, there is some really good news. Poles have very low debt and are becoming more affluent, with more and more disposable income - in 2017 the Poles’ average spend was 53 zlotys per person per month. That is equal to an 18% increase since 2015. They are spending more in hotels, restaurants and leisure activities.
How does retail compare to other asset classes across Polish real estate?
When you look at what’s going to be the best performing asset class over the next five to ten years, in my mind, there is no question: it’s retail. In Poland, you have this emerging middle class which is not spending like Western Europeans - the average spend and average salary is a third what it is in Germany, so we have years of growth ahead. And what I think is fantastic, is that the square meterage of retail in Poland versus Western Europe is pretty much the same right now. We in Poland are a mature market, but what we have that Western Europe hasn't got is real growth. Of course, you can argue that offices and logistics are going to have growth too. But when you think about where the growth in Poland is going to come from - from rising disposable income, which is only going to get better and better - then the best bet in terms of growth is retail.
How are disruptive technologies, such as e-commerce, impacting Poland and the CEE retail market?
In retail, as we all know, it's all about competing for people's time and money. Shopping centers are competing with cities, town squares and football arenas - and technology clearly has an impact. But what people have not understood is that here in Poland, the increase in the percentage of retail spending attributed to online sales is actually beginning to slow down. This is for two reasons. Firstly, purchasing power remains very low in CEE countries - in Poland, it is 50% less than Germany. And secondly, the delivery price is 85% of what it is in Germany. So the basket is smaller and the delivery price is proportionally much higher. And that is not going to change overnight - it is going to take years to change. Furthermore, another thing that people don't understand about Poland is that in comparison to Western Europeans, Poles prefer going to shopping centres - they see it as a leisure activity. This is due to a combination of smaller living quarters, lack of high streets, and weather conditions in addition to simple preferences. Those factors are not likely to change.
How important are leisure experiences in retail, moving forward?
Very important. Our new shopping centre will have over 50 restaurants and bars. There are going to be three separate zones: one for adults, with slow food and proper sit-down restaurants, a second zone that will be more for families and kids, and then a third zone that will be more hip and aimed at teenagers.
Do you see retail better positioned in mixed-use schemes or as stand-alone developments?
People don't just want a big, shiny box in the middle of nowhere. What they want is a huge, mixed-use scheme, where there is retail and residential, where there are restaurants, hotels and cinemas. That is really part of urban life now and - in terms of our new development, Towarowa 22, in the middle of Warsaw - it’s what Warsaw desperately needs.
Outside of Poland, are there any other CEE markets that you are bullish about right now?
Prague remains an outstanding place to invest. I also believe in Bucharest, but I think that Romania is five to ten years behind Poland. However, if there is one country where I do believe there is a real opportunity at the moment - and this might be a bit controversial - it is Russia. If you look at Russia at the moment, it's going up in the index in terms of ease and transparency of doing business. The fundamentals of Russia are very, very strong. But of course, it takes a brave man or woman to invest there in the current climate.
Retail in Poland and other CEE markets will be discussed further at GRI Club CEE’s next annual conference - CEE GRI 2019 - take placing in Warsaw on 14-15 May 2019.
What are the fundamentals behind the retail sector in Poland?
When you look at retail in Poland, there is some really good news. Poles have very low debt and are becoming more affluent, with more and more disposable income - in 2017 the Poles’ average spend was 53 zlotys per person per month. That is equal to an 18% increase since 2015. They are spending more in hotels, restaurants and leisure activities.
How does retail compare to other asset classes across Polish real estate?
When you look at what’s going to be the best performing asset class over the next five to ten years, in my mind, there is no question: it’s retail. In Poland, you have this emerging middle class which is not spending like Western Europeans - the average spend and average salary is a third what it is in Germany, so we have years of growth ahead. And what I think is fantastic, is that the square meterage of retail in Poland versus Western Europe is pretty much the same right now. We in Poland are a mature market, but what we have that Western Europe hasn't got is real growth. Of course, you can argue that offices and logistics are going to have growth too. But when you think about where the growth in Poland is going to come from - from rising disposable income, which is only going to get better and better - then the best bet in terms of growth is retail.
How are disruptive technologies, such as e-commerce, impacting Poland and the CEE retail market?
In retail, as we all know, it's all about competing for people's time and money. Shopping centers are competing with cities, town squares and football arenas - and technology clearly has an impact. But what people have not understood is that here in Poland, the increase in the percentage of retail spending attributed to online sales is actually beginning to slow down. This is for two reasons. Firstly, purchasing power remains very low in CEE countries - in Poland, it is 50% less than Germany. And secondly, the delivery price is 85% of what it is in Germany. So the basket is smaller and the delivery price is proportionally much higher. And that is not going to change overnight - it is going to take years to change. Furthermore, another thing that people don't understand about Poland is that in comparison to Western Europeans, Poles prefer going to shopping centres - they see it as a leisure activity. This is due to a combination of smaller living quarters, lack of high streets, and weather conditions in addition to simple preferences. Those factors are not likely to change.
How important are leisure experiences in retail, moving forward?
Very important. Our new shopping centre will have over 50 restaurants and bars. There are going to be three separate zones: one for adults, with slow food and proper sit-down restaurants, a second zone that will be more for families and kids, and then a third zone that will be more hip and aimed at teenagers.
Do you see retail better positioned in mixed-use schemes or as stand-alone developments?
People don't just want a big, shiny box in the middle of nowhere. What they want is a huge, mixed-use scheme, where there is retail and residential, where there are restaurants, hotels and cinemas. That is really part of urban life now and - in terms of our new development, Towarowa 22, in the middle of Warsaw - it’s what Warsaw desperately needs.
Outside of Poland, are there any other CEE markets that you are bullish about right now?
Prague remains an outstanding place to invest. I also believe in Bucharest, but I think that Romania is five to ten years behind Poland. However, if there is one country where I do believe there is a real opportunity at the moment - and this might be a bit controversial - it is Russia. If you look at Russia at the moment, it's going up in the index in terms of ease and transparency of doing business. The fundamentals of Russia are very, very strong. But of course, it takes a brave man or woman to invest there in the current climate.
Retail in Poland and other CEE markets will be discussed further at GRI Club CEE’s next annual conference - CEE GRI 2019 - take placing in Warsaw on 14-15 May 2019.