SCF Magazine, Retailnet.pl/February 2024
Jacek Wesołowski, Managing Director, Trei Real Estate Poland, in interview with SCF Magazine (Katarzyna Łabuz)
What was 2023 like for Trei Real Estate Poland? Were all the planned projects successfully implemented?
The past year was not the easiest years due to the war in Ukraine, which increased contractor costs, on the one hand, and due to high levels of inflation, on the other hand. These factors also had a significant impact on the rental market. But despite all these challenges, we managed to achieve 100 percent of our plan, of which I am very proud. This means we opened six Vendo Parks, and in December started construction of a 22,000 sqm retail park in Szczecin. As far as residential and private rental sector projects are concerned, we also met our targets. We currently have more than 2,500 flats under development, which actually exceeds the 100 percent mark of our original targets. So, it is reasonable to say that, despite the unfavourable macroeconomic and geopolitical situation, we were able to bring last year to a successful conclusion.
Annually, Trei is commissioning around six to seven new Vendo Parks. Will this also be achievable in 2024?
When taking the development currently underway into account, including the one in Szczecin, we plan to open seven Vendo Parks this year. We are also negotiating with general contractors in regard to building permits in Mogilno, Bolesławiec, Ciechanów and in regard to Kiełczowska Street in Wrocław. We are also redeveloping and extending retail parks in Skarżysko-Kamienna and Chorzów. Of course, we face challenges such as rising contractor prices and the unpredictable exchange rate of the zloty, which affects our implementation budgets because they are converted from euro. Despite these difficulties, the market remains interested in our projects, which enables us to move ahead.
You mentioned expansions. Does this mean that your retail parks are changing their format, will they be bigger?
Fact is that we are not particularly attached to any specific format. We tailor our projects, both the larger ones, located in large cities like Szczecin, Grudziądz or Bolesławiec, and the smaller ones in towns with populations of 12,000 or 10,000, to the needs of the local communities. However, there is a visible trend toward larger sizes in general, which is mainly due to the situation following the COVID-19 pandemic. It is important for investors and developers to have projects in their portfolio whose main footfall is generated by a supermarket. If another lockdown were to occur, which unfortunately cannot be ruled out, it is the grocery discount stores or drugstores that can carry on their business without restrictions. Tenants of this type allow us to keep the costs of these facilities under control. In short, we provide the market with both smaller and larger projects, but they are always embedded in local retail needs, so I am confident that they will retain their stable market position.
How are tenants' expectations changing? How do you assess their condition?
The last two years have been difficult for many businesses, especially after the outbreak of the COVID-19 pandemic. It was a phenomenon that negatively impacted many industries, generating fears of an impending recession and uncertainties about politics and other aspects. Naturally, it prompted consumers to cut their spending out of fear of tougher times ahead. As a result of these conditions, some industries, particularly electronics retailers, experienced dramatic changes.
Inversely, for companies letting commercial space, it has become important to deliver the floor space to tenants as promised. Some have evidently problems meeting these promises, especially the smaller players in the market. Limited growth or the cancellation of planned shop openings create potential risks for employees and companies.
In Trei's case, awareness of these challenges reaffirmed the company’s commitment to keep its word. For example, we worked for three months using a generator set purchased from a hospital to supply electricity to a site to ensure the project we were working on would be completed and open on schedule. It illustrates Trei’s commitment to do whatever it takes to ensure the completion of planned projects. This is crucial, especially in an industry where failure to deliver can result in negative consequences for both tenants and employees or even the market as a whole, which loses confidence in an unreliable contractor.
Your main tenants, the discount stores that dominate retail park projects, are doing rather well. Nothing is likely to change here in the short term, not least because Poles are price-sensitive, especially in times of inflation.
That is certainly true. The discounters are in good shape. I should like to mention Aldi in this context, which has significantly accelerated its growth. We see that stores of this type are growing dynamically, which in turn opens up opportunities for us because, if our key partners are actively growing, so can we. In this dynamic market environment, flexibility and the ability to adapt to changing conditions are key to staying competitive. I am pleased to say that Trei is ready to meet these challenges.
But other tenants, such as fashion, also appear in your projects.
Indeed, it is important to keep integrating new retail formats in retail parks, such as the Woolworth, which made its debut in Poland in 2023. Many companies have internal debates about whether the higher rental costs in shopping malls are truly justified by higher turnover. It often turns out that this is not the case at all.
Meanwhile, retail parks continue to change. Important to note here is that e-commerce continues to support our business because we are closest to where people live. Customers ordering online will often pick up their orders at the nearest retail park. E-commerce has made our shops not only a place for shopping, but has also turned them into showrooms and places where customers pick up or return their orders. This shows how e-commerce and stationary shops in retail parks can cooperate to create a win-win situation for customers and businesses both.
Trei has been an exhibitor at SCF for many years. What do you expect from this upcoming spring edition of the Forum, and what projects will you be coming to the fair with?
For many years, we have followed the tried-and-tested method of being present at trade fairs, where we present our product plans for the coming year. In addition to the previously mentioned five new projects, we have secured another nine properties, filling our pipeline for the next two years. Additional properties are currently being examined to keep feeding the pipeline. We also keep a close eye on the evolving permit situation, so as to be able to estimate which projects will be completed during the first part of next year. So, these are the plans we are ready to present both at our stand and to potential tenants. This will be the focus of our work at the fair.
It is also worth noting that the Shopping Center Forum (SCF) currently dominates the Polish market for real estate trade fairs and that it is therefore a key event for us that we regularly attend. Its venue allows us to work very efficiently and to make the most of our time, with significant benefits for our business.
At the end of our conversation, I wanted to ask you about the biggest challenges you are facing now?
A key challenge is to obtain planning permissions, which has become quite difficult, especially in recent years.
In addition, I have lately noted attempts to revive the housing sales market by making cheap loans available. But I am not convinced that this is the best solution. If this was my task to solve, I would focus on simplifying the procedures for obtaining planning permissions. A larger housing supply on the market translates into lower prices, whereas an increase in the number of buyers faced with limited supply will drive prices up. This is a fairly obvious reciprocal relationship, but for some reason it is not being taken into account.
Focusing solely on retail facilities, as a small format industry, we have decided to intensify our work within the Polish Council of Shopping Centres. I would like it to point out that the smaller formats are subject to significant development. It is no secret that large shopping centres are being built less and less frequently. We are working intensively to adapt these large sites to the changing market, which includes modifications, renovations, adaptations and various restructurings. Financially, the scale of this effort is comparable to building an entire retail park, the difference being that retail parks are currently experiencing something that used to characterise shopping centres, i.e. dynamic expansion and an inflow of new tenants.
I expect that we will see the visibility of smaller formats increase within the Polish Council of Shopping Centres in the coming months, and that various aspects of this cooperation will keep emerging.
There is also a need to address some of the provisions governing large and small-scale retail facilities, which sometimes constrain their development. It would be more sensible for decisions on such issues to be taken by those who develop local development plans, because they are more familiar with the respective community and its needs. So, this is an issue we should also raise in regard to smaller retail formats. We hope that the Polish Council of Shopping Centres, which has shown great efficiency and which has an expert team, will take steps to improve this situation in the near future.