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A NEW FRONTIER BECKONS

Central Europe attracting attention from the Continent’s retail real estate firms

BY SUSAN THORNE

Until recently, Central Europe’s shopping centers have consisted mainly of utilitarian, hypermarket-anchored boxes outside cities.

Over the past decade, Central Europe’s four most prosperous countries — the Czech Republic, Hungary, Poland and Slovakia — have been a magnet for West European retailers, particularly grocery hypermarket companies. But continental Europe’s shopping center developers have been slower to get involved.

That’s changing, however. The past two years have seen a quantum leap in the number of shopping centers opened by some of Western Europe’s leading developers, including Germany’s ECE Projektmanagement, The Netherlands’ Rodamco Europe and ING Real Estate, and Paris-based Ségécé.

These players, eager to expand, find there is greater demand for modern retail to the east than in their own countries. While the West European nations all had 100 square meters (1,076 square feet)or more of shopping center floor space per capita as of January 2002 (some, like France, the Netherlands, Norway, Sweden and the United Kingdom, had over 200 square meters), Central Europe was well behind: Hungary had 63.3 square meters of shopping center space per inhabitant, Poland had 62 and the Czech Republic had 54.1, according to a report by Cushman & Wakefield Healey & Baker.

“Eastern Europe still offers the chance to act like a pioneer, and opportunities for erecting new shopping centers are significantly fewer in Western Europe,” said Helmut Koprian, Hamburg-based ECE’s managing director of center management.

Central Europe has become an even more appealing prospect now that the Czech Republic, Hungary, Poland and Slovakia are on track to enter the European Union in 2004. EU entry will integrate markets and simplify dealings across borders, said Stewart Drummond, a partner overseeing pan-European shopping centers for property consulting firm Cushman & Wakefield Healey & Baker, London.

“You’ll get greater standardization of rules, and barriers to entry will be loosened,” he said.

Central Europe already has many shopping centers, but the vast majority are utilitarian developments centered around a hypermarket anchor, usually a Western brand such as Ahold, Auchan, Carrefour, Casino, Leclerc, Metro or Tesco. The specialized mall developers follow a very different prototype, with a higher design standard and more specialty retailers, and their centers tap into the potential of downtown sites. The hypermarket projects, meanwhile, tend to be outside the city hubs. Developer-owned projects like Zlote Tarasy, for instance, which Rodamco Europe and ING Real Estate are building in downtown Warsaw, can attract top brand-name retail banners.

“We’re a pan-European company with direct relations to a number of leading pan-European retailers, such as H&M and Inditex [corporate owner of Zara],” said Scott Abbey, Rodamco Europe’s manager of retail synergy. “We have the relationship that enables us to introduce them to Eastern Europe.”

International retailers’ interest in the region continues to build, said Jan van Hensbergen, ING’s managing director for Poland, noting that British, French and German retailers are the most active cross-border players.

The above-mentioned developers all expect to expand their Central European portfolios. Rodamco Europe continues to consider opportunities in its existing markets of Poland, Hungary and the Czech Republic. ING is centering its energies for the time being on Poland, where it is in the early negotiating stages of a major joint project with the city of Katowice. This facility, slightly smaller than Zlote Tarasy, will span a downtown area currently occupied by a railroad station, linking areas of the city hub that are now separated. ING expects to begin construction in mid-2004.

Ségécé has some misgivings about Poland, which is suffering from an economic downturn. “But never say never,” said Dominique Beghin, Ségécé’s managing director of development. On the other hand, the company is bullish about the Czech Republic, said Beghin, but will probably proceed by acquiring centers rather than building them.

Competition for market share is growing, however. The hypermarket players are very interested in expansion, and their role in the market is not to be discounted. British grocery chain Tesco claims to be the leading retailer in Central Europe, where it has 113 stores. The chain boasts that in terms of sales, it is No. 1 in Hungary and Slovakia, and among the leaders in Poland, according to Peter Bracher, Tesco’s head of corporate international affairs.

Renata Juskiewicz, a Warsaw spokeswoman for Metro AG (Poland), said the DŸsseldorf, Germany-based parent company plans to expand its group of 77 Polish hypermarket retail outlets, encouraged by the potential for EU membership, which “creates much better perspectives for development and a better investment climate.”

Hypermarket-anchored centers are improving the quality of their offerings and growing in size, which could bring them more shopper visits. Tesco Letnany outside Prague, Czech Republic, has 60,000 square meters of retail, for example, only 11,000 square meters of which are occupied by its Tesco hypermarket.

And in another sign of the maturity of these markets, the retail outlet center has arrived. Anna Wysocka, a property negotiator at CB Richard Ellis Polska, Warsaw, said that Spanish developer Neinver opened a 9,000-square-meter center in Warsaw in December. And The Outlet Co., based in the United Kingdom, plans four factory outlet centers in Poland, the first of which is to open in Sosnowiec, Silesia, in October.

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