Following my colleagues who have visited places in the UK and Australia I have undertaken a journey through some of the flagship retail destinations in my hometown of Warsaw. My visit is coinciding with Poland’s lifting the lockdown and most of the COVID restrictions since May 4th. For more than 5 weeks now all shops have been opened again - before, only essential services were allowed to keep trading such as supermarkets, pharmacies, bookshops and newsagents. Cinemas reopened last week, and restaurants started letting customers in from this weekend - until now people could only be served outside or order take-aways.
The comeback to normality has been bumpy and varied from location to location. Overall, it looks like the busier downtown locations are still impacted the most, whereas smaller towns are back to 2019 levels of sales - sometimes they even exceed the pre-COVID performance.
Below are examples demonstrating how each type of location in 2 different urban areas have been performing since the restrictions have been lifted. One can see that Warsaw retail is still struggling and this is what we have been hearing from our clients; that large malls in downtown areas are still far from their expectations whereas suburbs and other smaller towns have been performing as in the good old days.
We are in the middle of a project for one of our clients assessing their portfolio in Poland and we will set off on a journey visiting their stores in Warsaw in various malls and retail parks. We will start with the most recent opening of Galeria Młociny on the northern outskirts of the city and then we will visit the best performing mall of Westfield Arkadia located in downtown Warsaw. The next mall on our map is Zlote Tarasy – which used to be a high footfall venue next to the Warsaw main railway station and we will finish off with one of the smaller convenience retail parks on the city western outskirts.
Galeria Młociny is the youngest of the malls in Warsaw and has been trading for only 2 years. It had a slow start and has struggled to be fully let for some time. The ambitions and expectations of the landlord were very high but were not quite in line with performance of its tenants. The first problem appeared to maintain quality of the big food offer – something that aspired to be a hero section of the centre. However such a category needs high volumes of constant footfall which really was not the case. Food operators, after a few months of accepting certain level of losses, started to look after their cash and a vicious cycle began - food quality was getting worse and worse, attracting less and less customers.
One year later in the middle of COVID in summer 2020, a long-awaited Primark store finally opened their doors and helped increase footfall of the mall. As this is the only Primark in Warsaw and the brand is quite popular amongst Polish customers, Młociny managed to extend its catchment enhancing its awareness on the city retail map. It is doubtful however whether one great tenant can turnaround the fate of a 250 million PLN investment.
Arkadia has been trading in downtown Warsaw for more than a decade. The centre established itself as the best mall in the country in a great location, with a dense and affluent catchment and superb tenant mix – a good blend of fashion, food, and leisure. Retail is anchored by a good quality Carrefour hypermarket and a variety of restaurants and a large, high quality food court. On the top floor there is a cinema. Although being a perfect revenue generator for any landlord, it was one of the hardest hit retail venues in the country. The centre is still 20-30% below pre-COVID footfall which is visibly seen walking through alleys or by judging car park occupancy levels on a Friday afternoon – you can easily find a parking space very close to any of the entrances into the mall, something unimaginable 2 years go. Nevertheless, we believe that due to its unique qualities, plus an excellent location with considerable affluent residential growth this mall is likely to have a bright future in the times ahead.
Zlote Tarasy, located next to the Warsaw main railway station was probably one of the hardest hit by COVID in Poland. This mall is likely to have lost half of its footfall base and has not really recovered for the last few weeks since the reopening. The history of this retail place is not very smooth, as it had a really bumpy start. Given its railway station location, for quite some time after opening, it acted as more of a show room or a waiting room for millions of passengers from the station. It finally established itself as a successful retail destination despite being only 2 km away from Poland’s No1 retail place, Arkadia – the reported footfall from the peak times of trade was almost 20 million customers per year. It is quite depressing to see it today with empty alleys and shopping assistants chatting with each other which is usually a sign that not many customers have been served by them.
Babice Retail Park.
And finally, we arrive in a place which represents a gold mine for Polish retail market development these days – a convenience retail park anchored by a Biedronka grocery store with adjacent fashion discounters and general merchandise shops. The place is very well located to serve this affluent Warsaw suburb, is fully let, the car park is almost full and looks like everything is performing well.
There has been a big increase in development of this type of retail format for some time. Even mid-pandemic, developers delivered more than 70 parks which translates to over 400 thousand sqm of GLA. This year an additional 27 parks have already opened and it's likely to beat the 2020 opening record. On the contrary, there were only 5 traditional shopping centres that opened in both 2020 and 2021, adding around 100 thousand sqm to the new space built.
Is it over for large shopping centres?
Now it’s time for some conclusions which I believe are representative for the entire Polish retail market, but are based on this small sample from Warsaw. We have witnessed questions asked and many discussions among retail and property professionals whether shopping centres are obsolete and should be replaced by other forms such as convenience or e-commerce. Some opinions in those conversations were that shopping centres would be fine as they are usually well placed, have good schemes and even if retail sales are shifting towards online the surplus space would be taken by leisure and food which both have been growing trends for more than last 10 years. Well, what we saw is that both leisure and food were hit the hardest by the pandemic and many businesses went bust. On the other hand, we are seeing that convenience retail parks were hardly impacted due to the nature of their development - direct access from car park, location in less densely populated areas not being impacted by shopping habits of the residents in a way the downtown residents have reacted to COVID.
The trend of convenience retail parks outperforming traditional malls began some time before COVID. It started with provincial larger towns which were the last victims to accommodate malls before the retail parks expansion began. We have witnessed competition of the two formats in the places with more traditional shopping habits and seeking value for money offer and retail parks have turned out to be winning by offering both. Now due to COVID, every trend has accelerated, and we are seeing troubled malls even in larger and affluent markets, meaning billions spent on those huge developments are at stake. The malls as they are today will require a lot of good ideas to repurpose their current uses should the trend of negative double-digits continue, but some are for sure doomed to exist.