RETAIL DEVELOPER’S GUIDE

Karina Kreja, Associate Director in CBRE:

After two decades of dynamic development Polish retail market is now mature. Despite increasing competition it still offers considerable development potential, albeit far more selective than in the past. We address the following publication to both seasoned and future retail developers to support them in their retail investment plans. It is essential to understand that shopping center planning is a complex process that requires in-depth knowledge of both consumer and competitive market.’

Michael Oberweger, Head of Consulting, RegioPlan Consulting Developing good commercial sites isn’t a matter of advanced science, it’s a pure handicraft. This handicraft includes the knowledge about the most important instruments for the planning and development of sites, the know-how needed for the application of these instruments, an understanding of the interactions between retail and consumers and very reliable data. If this publication contributes to enhancing the knowledge about these instruments and the benefits they bring, then its main goal has been achieved.

Dariusz Gardener, Managing Director of ADV POR:

Despite growing competition from the part of other developers, the shopping centers remain very attractive for construction sector. However this is the market that requires deep expertise especially with regards to the specialized projects. That is why we decided to work with CBRE as exclusive advisor and agent on our first outlet project in Lublin. The knowledge and contacts of consultants led by Magda Fratczak resulted in a good concept that has already attracted huge tenants’ attention. We plan to work with CBRE in future on our next retail projects.’

4 INTRODUCTION 6 STARTING WITH THE LOCATION 8 MARKET POTENTIAL ASSESSMENT 9 FROM CATCHMENT TO TENANT MIX 11 DESIGNING THE BEST LAYOUT 12 VALUE ADD INVESTMENT 13 DEVELOPER’S CHECK LIST 14 MARKET PRACTICE KEY TERMS KEY SHOPPING CENTRE FORMATS

Dr. Nils-Christian Hakert, COO, Atrium Real Estate “Atrium Real Estate has a large portfolio of Shopping Centers in the CEE region, which has been constantly and successfully growing. RegioPlan has been conducting the Shopping Center Analyses for the whole portfolio not only in Poland, but in other CEE countries as well. These analyses represent a great second opinion for management decisions and big support for our marketing. RegioPlan team has a great knowledge about the Polish market, is highly customer-oriented and a pleasure to work with. A great team I can highly recommend!” Disclaimer CBRE Sp. z o.o confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

INTRODUCTION COPING WITH A MATURING MARKET After two decades of rapid development the Polish retail market is now reaching maturity. The end of 2012 saw total shopping centre stock increase to 9.5 million sq m of GLA comprised in 420 schemes of which 38 are specialized formats, in-cluding retail parks and factory outlets. Undeniably, times are increasingly chal-lenging for retail developers. With consumer demand easing in response to the prospect of the prolonged economic slowdown and market saturation symptoms already observed in a number of locations, shopping centre development is losing its reputation as one of the safest real estate investment sectors. Additionally, the level of risk attached to retail scheme construction is being re-assessed, with a number of uncertainties emerging from the combination of reduced levels of fi-nancing, continuously moderate retailer demand as well as quickly changing con-sumer habits. For a market that has so far developed in extremely favourable conditions, difficult times are approaching. Clearly, the gap between market leaders and those lagging behind is growing. With prime shopping centres such as Manufaktura or Galeria Mokotow trading at below a 6% yield, other shopping centre transactions are often being completed in double digits. From an investor’s perspective, the ongoing ‘run to safety’ translates into decreasing prime yields while the spread for secondary and tertiary products is widening. This mirrors tenants’ demand, with the best schemes enjoying negligible vacancies and waiting lists while an increasing number of shopping centres are suffering from persisting high vacancies. In terms of client interest, the best schemes in Poland record footfall levels of over 30 million visitors per year while the majority of schemes fail to reach the 5 million visitor threshold that in the recent PRCH Footfall Index research has been indicated as the 2012 average. At that same time an alternative retail concept is providing competition for shop-ping centre schemes. Format-wise, the recent strip mall expansion is the most prominent trend that also marks the growth of small (under 5,000 sqm of GLA) convenience and neighbourhood formats. Also, the market has seen several com-pletions of themeoriented projects with household equipment centres at the lead. This publication is aimed at supporting shopping centre developers as well as other market players engaged in planning, commercialization, construction and strategic elements of a shopping centre concept. Tapping on the market expertise of CBRE and RegioPlan Consulting, it aims at guiding them through the key elements of this complex process.

Koneser Warsaw

IS IT WORTH BUILDING ANOTHER RETAIL GALLERY?

The answer in general is yes, as market niches persist, but a developer needs to be increasingly selective and sophisticated in order to hit the market with the right type of product. Already market saturation is high in a number of medium-sized Polish cities such as Opole, Rzeszow or Legnica. Still, in many other locations tenant demand remains unsatisfied, as the existing retail offer does not match their requirements. For example, approximately 1/3 of the stock is located in 1st generation, hypermarket-anchored schemes, while the majority of expanding ten-ants are looking for retail gallery space, where fashion, accessories, as well as other comparable goods are the key merchandise.

Outlet centrum Lublin

Outlet centrum Lublin

There is also a major mismatch location-wise between tenant’s requirements and shopping centre provision, as 2/3 of currently constructed projects are to be deliv-ered in medium and small cities, whereas purchasing potential remains the highest in the eight key urban centres of Poland, presented in more detail in CBRE’s annual ‘Poland Retail Destinations’ report. Warsaw, Silesia and Szczecin all record very low vacancy levels that indicate a landlord’s market. For example, in Warsaw the lack of quality shopping centre space has already had a very positive impact on its high streets but also pushes shopping centre rents up, whereas elsewhere they remain stable or have slightly declined. Although the entry threshold for the mature markets is higher than in the case of a new location, there are additional incentives available to any developer building in large cities, such as considerably lower market risks and higher returns. Moreover, the current market environment clearly promotes several formats that were previously overlooked. Small or large strip malls that were often neglected in the past are now rapidly expanding in both city centre and out-of-town locations. Retail parks, also with minimum common space required, are recording an in-creasing pipeline. Furthermore, a number of hybrid schemes, such as Szczecin Outlet Park with a Helios cinema leisure addition, are emerging to fit best in their local context. At the other end of the shopping centre spectrum a new generation of inner-city galleries that combine a retail function with a transport hub are on the increase, with two flagship projects in Katowice and Poznan now at the advanced stages of construction. The retail developers’ list is continuously being extended with many new players, largely comprised of established companies from the residential sector or experi-enced main contractors, now trying their chances in retail. But the times of the ‘build and they will come’ approach are now over, as both tenants and investors are increasingly selective. The market is ever stronger in discriminating between prime and non-prime schemes. Even experienced developers have seen their centres suffering, when built without market expertise. It is essential for a shopping centre’s long-term success that a thorough and comprehensive assessment of its potential is undertaken.

Retail investment in Poland 3000

2500

2000

1500

1000

500

0 2006

2007

2008

2009

2010

2011

2012

Source:CBRE

Poland - Key Statistics Population (‘000)

38 200

Unemployment Rate

12%

Monthly Average Gross Salary (EUR)

904

Modern Shopping Centre stock (’000)

9268

Average vacancy rate

2.6%

Prime rents -Warsaw Prime rents (EUR/sq m/month)

75-95

Prime rents -Poland Prime rents (EUR/sq m/month)

30-45

Source: GUS, CBRE, 2012

STARTING WITH THE LOCATION

Huff Model Based Catchment Area for a Fictive Project City area Warsaw Primary catchment

LOCATION, LOCATION, LOCATION Location determines success! There is a suitable location for every use and it is a precondition for any successful business. While seashore rocks represent a stable and weatherproof location for a lighthouse, the optimal location for a shopping centre is characterized by high ranking accessibility, visibility and parking spaces. Even though these aspects are relatively easy to measure, a great number of shopping centre developments suffer compromises when the location is considered. Seemingly irrelevant and justified by economizing on the often limited resources, these compromises are sometimes fatal, particularly once a competitor comes into play, who has respected all of the success factors. In other words, too many compromises relating to the location make a shopping centre vulnerable to better located competition.

Secondary catchment Drive - time zone Existing shopping centre Projected shopping centre

Types of Catchment Areas

CATCHMENT AREA DELIMITATION

1 400 1 200 1 000 800 600 400 200 total drive time zones

total catchment

20 minutes zone

Purchasing Power per Inhabitant in € 2012 9 000 8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 Szczecin

Poznan

0 Wroclaw

Once the catchment area is drawn, we proceed to the estimation of the total mar-ket potential. This value represents the total amount of money being spent by private households on retail trade. To get an even better idea of the potential, one can break down this number into different retail sectors, and even further into different product groups. The basis for calculating the market potential are the number of households, the average consumer expenditure per household, retail sector and year and the local level of wealth, represented by the purchasing power index. As shown in the accompanying chart , the purchasing power varies con-siderably between the different regions of Poland, even between the largest cities. For plausible results a reliable data provider is essential. Experience has shown that official data provided by national statistics often deviates from the real picture for various reasons. This especially concerns official consumer spending data as the official statistics fail to grasp factors such as the black market or direct money transfers, which however have a significant impact on the total disposable income of inhabitants.  

10 minutes zone

QUANTIFICATION OF THE RELEVANT MARKET POTENTIAL

secondary catchment

0

Lodz

catchment

1 600

Krakow

10 minutes

Catchment vs. Drive-Time Zone/ Number of Inhabitants

Warszawa

3 kilomtres

As shown on the map above, a 20 minute drive-time zone of a fictional small scale project at Stadion Narodowy covers large parts of the city of Warsaw. Yet, its actual catchment area is much smaller as several large scale competitors limit the potential reach of the fictional shopping centre, especially in respect of areas east of the Vistula River. Consequently, the actual catchment area comprises of about 600,000 inhabitants, while the 20 minute drive-time zone includes a population of about 1.5 million people. To conclude, drive-time zones are an important tool for estimations, but cannot replace the catchment area method. Even though delimiting a real catchment area can be cumbersome and time-consuming, it represents the model which gets the closest to reality.

primary catchment

5 kilomtres

Poland Average

Sufficient knowledge about the catchment area is the basis for every successful investment decision when it comes to shopping centre development. The catch-ment area defines the market capacity of a retail project and provides crucial in-formation on demographics and purchasing power. There are, in general, three different ways of delineating a ‘catchment area’, with varying validity regarding the actual market potential for a project. The simplest method is to draw circles around the location. That however, ignores topography, and is hardly suitable for a detailed location analysis. A very common approach is the concept of drive-time zones, which can be realised with most GIS tools available on the market. Drive-time zones are based on the actual road network and are more suitable for the assessment of a location, as they represent a realistic picture regarding accessibility. A drawback of this method is the disregard of one very important factor which influences the catchment area: the competition! The drive-time zone does not stop at a competing shopping centre in the vicinity, whereas a potential customer most probably does. In the eyes of a customer, competitors represent ‘intervening opportunities’, which many are not willing to ignore in order to visit another centre, located at further distance. This fact, in reality, limits the actual catchment area. Taking this into consideration, the Huff model, based on the delimitation of catchment areas, represents an approach which takes account of the latter cir-cumstances, thus preventing an overestimation of the market size.

80 60 40 20

maximum total points

center 2

0 project P2

The retail market in many Polish cities is rapidly becoming saturated. Each existing centre has its particular strengths and market position. Development projects, on the other hand are numerous and often difficult to predict particularly relating to the likelihood of the realisation, the quality of the concept and its success. In con-sidering the variety, it is essential to know who the real competitors are; how they stand in comparison to each other; and how they relate to the planned shopping centre project. To answer that question, RegioPlan Consulting applies a simple and effective two-dimensional diagram, based on two scoring models. One model assesses the quality of location for each existing centre and all known projects, while the other assesses the quality of the concept. Only a combination of both factors determines the impact of a relevant competitor. An example is illustrated in the diagram below.

100

project P1

COMPETITION ANALYSIS

Example scoring model for the location

analysed project X

MARKET POTENTIAL ASSESSMENT

FROM CATCHMENT TO TENANT MIX

Environment

Access Individual

Access Public

Plot

Example scoring model for the concept

100

DEFINING RETAIL FORMAT Merchandise mix, defined on the basis of purchasing power in an effective catch-ment area, is a starting point for a retail format definition. Initially, potential brand and tenant mix is defined and is then confronted with the market. Also, the overall market potential defines the maximum supportable floor space size of a planned scheme, a key indicator that should always be taken into consideration. Obviously, not all potential in the catchment needs to be tapped into by a new scheme, but all proposed concepts should fit into the existing demand. At this stage it is necessary to step back again and have a another close look at all of the existing and potential competition. In-depth knowledge of the existing and planned competition is essential. Brands’ presence, as well as footfall and turnover performance, gathered from the operat-ing shopping centres all support an informed decision-making process, however this data is often impossible to collect without the professional help of a market advisor such as CBRE, that is able to combine first-hand information coming from leasing, management and capital markets business lines. Also, the qualitative observations of a seasoned advisor have a great value at this stage of the decision-making process, as often it is possible to determine the most and the least suc-cessful components of the competing projects even without quantitative data. Confidence coming from experience is valuable and often intuitive ideas prove crucial, particularly when supported with a thorough analysis.

Retail formats in Poland 9%

1%

38% 29%

23%

Ist generation shopping centres 2nd generation shopping centres 3rd generation shopping centres Outlets Retail parks and theme-oriented

Warsaw retail market composition

16%

80

BUILDING A NARRATIVE

60

20

maximum total points

center 2

project P2

project P1

Branch Mix

Anchors

Other Tenants

Layout and Interior

9 000 7 500 6 000 4 500 3 000

A shopping centre, unless it is a neighbourhood scheme, needs to differentiate clearly from its immediate competitors. In an ever more competitive retail envi-ronment shopping centres are increasingly required to build their own identity based on location and brand. Therefore a consistent, strong narrative is needed in order to appeal to both tenants and customers. It is impossible to target everyone and clear choices need to be made. For example, a retail gallery could be budget and family lifestyle oriented, target top market slice, or combine some characteristics, but can never be all at once. Lack of a clear shopping centre brand results in client confusion, which is always a drawback. Key shopping centre profiles that currently dominate the Polish retail landscape are: 1st generation hypermarket-anchored with a service gallery, 2nd generation scheme anchored with a hypermarket and mid-market fashion gallery, as well as 3rd generation retail gallery with a sizeable leisure component. However, the spectrum of available formats is much wider and many other concepts, including hybrids, or specialized and theme-oriented schemes, are feasible if catchment and competition analysis indicate numerous available market niches.

13%

40% Ist generation shopping centres 2nd generation shopping centres 3rd generation shopping centres DYI/retail warehousing Outlets Retail parks

Retail formats evolution in Poland 12000 10000 8000 6000 4000 2000

1 500

0

electronics

sports

clothing

drugstore/perfumery

0 food

Once the catchment area and the competitive situation are determined, the next step is a simulation of the purchasing power flows. These flows are represented by achievable market shares, which lead to the turnover expectation for each retail sector. Finally, the turnover potential can be transformed into a GLA potential by applying the average productivity in EUR/sq m by retail sector or even by tenant. In other words, this provides the answer to the question: ‘Which GLA can be realised per retail sector to achieve at least an average productivity per sq m?’ The result generated reflects both the optimal total size and the optimal merchandise mix.

analysed project X

0

DIMENSIONING OF THE PROJECT

2% 8%

40

Assuming ‘X’ to be the analysed project, the assessment shows a relatively good location and a superior concept as compared to all other centres in the market or in the pipeline. The competitive projects ‘P1’ and ‘P2’ as well as the centre ‘1’ seem to be weaker, either concerning the location or the concept. Consequently, they do not represent a severe threat at the moment. But what about the existing centre ‘2’? It obviously has the best location in town, but currently a rather outdated and unattractive concept. From a strategic point of view, this centre could be refurbished in the future and cou ld thus become a potential major threat.

21%

I Generation

II Generation

III Generation

TENANT MIX SOLUTIONS Once the market analysis has been completed and a shopping centre’s best po-tential profile identified, a preliminary tenant mix concept can be sketched. To create an initial tenant mix CBRE takes into the account tenants’ favourable con-ditions, that is a consideration of rental levels including optimum leasing space and location preferences, not only with regards to the key layout elements, such as entrances, but also in relation to other retailers. Two key tenant groups in a tenant mix include: Anchor(s) are typically the largest and key stores in a scheme, and main internal traffic generators. The presence of anchors is one of the main defining charac-teristics of every shopping centre. Anchors are typically the first to be invited to a project, often on very favourable conditions. Typical anchors in Polish schemes are hypermarkets and large fashion tenants. There are no typical department stores as shopping centre tenants in Poland, but it is common that hypermarkets double in their role and offer a wide variety of other than FMCG or complementary merchandise. Anchors usually occupy from 20% to 40% of a centre’s GLA, and, depending on the size of a scheme, can take up to 12,000 sq m. In-line tenants, including all other than (primary and secondary) anchor tenants present in the scheme, which usually lease retail space for market level rents, and are offered typical units. However, the rental differences even between in-line tenants remain considerable. For example, often similarly sized tenants coming from different market segments can pay considerably different rental levels as their profit margins and sales profiles vary.

Key Anchores

category

operator

Hypermarket

Tesco,Carrefour, Real,e.Leclerc, Auchan

Supermarket

Piotr i Paweł,Alma, PoloMarket,Stokrotka, Biedronka

DYI

OBI,Praktiker, Leroy Merlin

Electronics

Fashion

Saturn, TRV Euro AGD Media Expert Inditex Group LPP Group, C&A,H&M

Source: RRF, CBRE Tenants presence per categories

FROM TENANT MIX TO LAYOUT A preliminary layout can be put in place once the first tenant mix has been com-pleted, after all key occupiers have been identified and their size, as well as their position in the scheme, has been initially assigned. However, both tenant mix and layout creation are fine-tuning processes that are closely interlinked and typically are considered together through a number of layout versions. Depending on the project’s complexity, the tenant mix (re)drafting process takes from several to dozens of re-iterations between leasing and design teams. The most successful project achieves a relative balance in customer traffic levels across a scheme, be-tween entrances, anchors and tenant’s clusters (such as a food court or boutique fashion cluster), providing equally good retail conditions for every unit in the scheme. The preliminary layout includes all key features of a given location, such as access points to the site, a building location on a given plot, various entry points to the site and buildings, delivery zones, car parking, as well as other key determinants such as shopping mall (horizontal and vertical) traffic. At this stage a specialised software package, for example based on Space Syntax theory, can be used to simulate traffic flows, but more often the expertise of both leasing agents and the management team is employed in order to anticipate levels of customers activity in various parts of a centre.

Top 10 tenants in Polish shopping centres category

examples of tenants

From the financial perspective, preliminary tenant mix is an essential element in the project foundation process, as it gives the first insight into its future financial performance, with an initial assessment of achievable rental levels as well as cash flow estimations. Therefore, preliminary tenant mix closes the analysis stage and serves as the key reference when the decision on a project’s financing is made.

81

CCC

Shoes

73

Triumph Inmedio

Fashion

61

Apart

Accessories

59

Deichmann

Shoes

52

Vision Express

Health & Beauty

52

5àSec

Services

50

Orsay

Fashion

49

Reserved

Fashion

48

Euro RTV AGD Electronics

Source: RRF, CBRE

Examples of layout solutions Key tenant categories

Preliminary layout Final layout Other Anchores Other Anchores

Fashion Shoes Grocery

category

Cinema

Bowling Children playgrounds Foodcourt

Fitness

examples of tenants CinemaCity Mulitkino, Helios,Imax Independent tenants Fantasy Park Kidsplay, Kinder Planet McDonald’s, KFC, Burger King NorthFish Pure, Gymnasion, Fitness Academy

Source: RRF, CBRE

Present in % of Schemes

Multimedia

Inmedio

The anchor and other key tenants’ views are important in the layout fine-tuning process, whereas the majority of in-line tenants, who join the project later, have considerably less say with regards to their position and unit shape. Preferably, they are grouped in clusters to create the equivalent of an anchor in terms of a traffic flow. However, such key features as unit size and proportion, visibility, frontage and signage, as well as lighting and air-conditioning, must be provided in accordance with market standards.

Other key tenant groupings that have a vital importance to both tenant mix and a scheme layout are based on their merchandise and service offer, including key categories such as grocery, fashion, home, restaurants and food court, comple-mentary services, and leisure.

 

DESIGNING THE BEST LAYOUT

Home Appliances Media Children Restaurants & Bars Accessories Health & Beauty Services Other Foodcourt

47

VALUE ADD INVESTMENT

 o o o

3,0

Does the site have an intact image as a retail destination? Do you have full control of the land required for the retail facility, including accesses and parking spaces? Does the location offers sufficient space to achieve the adequate size necessary for the intended market positioning?

2,0

Building

o Does the existing building offer the structural (especially in terms of statics, storey height, vertical connections, sightlines, mall width, etc) and technical (IT, home auto mation, etc.) conditions necessary for creating a modern shopping environment? o Given the existing building structure, is it possible to implement a compromise-free solution for access roads, parking spaces, optical image and visibility of the building and the advertising space?

1,0

2013-2017

2008-2012

2003-2007

0,0

1998-2002

Refurbishment and revitalization of shopping centres will be gaining in importance in the next few years. Not only does this apply to shopping centres of the “first generation”, but also to hypermarkets, which have been growing rapidly in number between 1996 and 2005. Since 2005, however, the expansion of this format has experienced a substantial slowdown, which is a consequence of the high hy-permarket density and changing consumer needs. Well-patronized hypermarkets with great accessibility, surrounded by undeveloped plots (representing space for expansion) are now coming to the attention of many real estate developers. At present, the leasable area of shopping centres, retail parks and hypermarkets opened since 2002 amounts to about 4.1 million sq m. Even though some of these investments have already been revitalized, the Polish retail real estate market offers tremendous opportunities for successful refurbishments. Possibilities for extension need to be examined at each site in advance, and should form part of a comprehensive assessment of the property and location. Compromises in layout, tenant mix, or architectural design represent risk factors and need to be avoided by all means. Despite the high value-add potential of refurbishments, such investments are very complex and often involve greater risks than new developments. Developers of green field projects can be largely flexible in designing access roads, ensuring visibility and sufficient advertising area, as well as in determining the centre layout and position of anchor tenants. Refurbishments on the other hand considerably narrow these elements of flexibility. Architects may also face structural limitations, whereas the leasing and marketing teams might in some cases have a tough time dealing with the established negative image of a given retail destination. Moreover, non-cancellable long-term lease agreements may seem favorable from an economic and legal perspective, but for the restructuring of the tenant mix such agreements can become problematic. To diminish these risks, it is necessary to carry out a careful due diligence analysis and to address relevant experts for each particular area. As a location analysis expert, RegioPlan Consulting believes retail centres should undergo a thorough check of their location, their competitive strengths, and their ability to generate sufficient turnover per sq m. At the very initial phase, investors considering a refurbishment should answer the following yes/no questions. The more questions that are answered with “yes”, the lower the number of compromises that may have to be made and consequently the risk of failure is reduced.

Location

Age group structure in Warsaw compared to Poland

-1997

REFURBISHMENT OPPORTUNITIES AND PITFALLS

DEVELOPER’S CHECK LIST

Hypermarket Retail Park Shopping Center

Competitiveness o o o

Current retail stock by age in ‘000 sqm of GLA

Given competitors’ performance, is it possible to achieve the targeted market positioning or strengthen the existing one? Can, even in a tougher competitive situation, a sufficiently high productivity and rental income be achieved? Are you ahead of competitors with your concept or are others already filling that market gap?

Tenants

Under Construction (2013 - )

o o o

New additions (2008 2013)

Maturing schemes (2003 - 2007)

Mature stock (1998 2002)

Does the centre have a critical mass of existing tenants who are suitable for the new market positioning of the project and who should remain in the centre? Can you attract at least one of the top three out of the five leading tenants in the most relevant retail sectors for the targeted positioning? Is there a time window of concurrent lease contract expiries, which is favorable for the realization of the refurbishment?

Strategic issues

Old performers (1993 - 1997) 0

1

2

3

4

o o o

Does your intended concept meet the expectable demands of real estate investors? Do you have a clear exit strategy? Is your financing structured accordingly?

MARKET PRACTICE LEASE LENGTH AND TERMS – Typical lease contract period is 5 to 10 years with an option to extend. Most rents are denominated in Euro and paid in zlotys, but service charges and other payments (e.g. marketing fees) are often denominated in the local currency. Only the oldest leases can still be denominated in dollars. Rents are typically the subject to annual indexation by the European (Eurostat) price index.

KEY SHOPPING CENTRE FORMATS TRADITIONAL SHOPPING CENTRE – a scheme that is planned, built and managed as a single entity, comprising of units and common areas, with a minimum Gross Leasable Area (GLA) of 5,000 sq m and at least 10 shops and services.

RENTAL PAYMENTS – Rent is payable monthly in advance, and is quoted without VAT.

1ST GENERATION – Hypermarket – driven (accounting for 40-50% of the total GLA) scheme together with a small, service-oriented accompanying gallery.

SERVICE CHARGES – Service charge payments cover ordinary building maintenance costs such as repairs, cleaning and security. Denominated in zlotys, they typically reach between 25 – 50 PLN /sq m/month.

2ND GENERATION – A shopping centre driven by a retail, typically fashion gal-lery, that represents over 70% of the total centre space.

MARKETING COSTS – Additional regular payments covering shopping centre management expenses on advertising and events. Denominated in zlotys, typical mar-keting payments vary between 5 – 20 PLN /sq m /month. TENANT’S COVENANT – Covenant strength is very important within the Polish market. Rental deposit, bank or parent company’s guarantee equivalent to 3-6 months’ rent, service charge, marketing costs and VAT is expected from all tenants. INCENTIVES – Incentives include capital contributions towards shop fitting and rent-free periods, individually negotiated between the parties. Anchor tenants can expect a minimum of 3 months’ rent-free or a fit-out contribution.

KEY TERMS MARKET TRANSPARENCY – the property market has strong and transparent fundamentals regarding property titles but a degree of opacity persists with regards to the availability of market information. The information on historical freehold and perpetual usufruct transactions registered as Notarial Deeds is freely accessible to the listed property valuers, but there is no public record on lease transactions. RETAIL SPACE GLA – gross leasable area in sq m refers to the area leased to tenants and includes all other construction elements. TURNOVER – Sales volume, reported on a monthly or quarterly basis. Average shopping centre turnover reached approx. 850 PLN / sq m / month in Q2 2012.

3RD GENERATION – A lifestyle scheme enhanced with and often driven by a leisure element, such as a multiplex cinema, fitness element, or increasingly – a food court offer. SPECIALISED SCHEMES: RETAIL PARK – Consistently designed, planned and centrally managed scheme that comprises of mainly medium - and large-scale specialist retailers (“big box” or “retail warehouses”). FACTORY OUTLET – Shopping centre scheme where manufacturers and retailers sell merchandise at discount prices that may be surplus stock, priorseason or slow selling items. THEME-ORIENTED - A consistently designed, planned and managed scheme that can either be leisure-based or non-leisure-based. This scheme includes some retail units and typically concentrates on a narrow but deep selection of merchandise within a specific retail category, such as home furniture or hobbies.

CONTACTS For more information regarding CBRE and REGIOPLAN reports or any other CBRE and REGIOPLAN services please contact

Karina Kreja   Associate Director Rondo 1 | Rondo ONZ 1| 00-124 | Warsaw DDI +48 22 544 8064 Fax  +48 22 544 8001 M +48 500 000 643 [email protected] http://www.cbre.pl

Nada Mumdžiev Senior Account Manager

Joanna Mroczek Director - Head of Research & Consultancy Rondo 1 | Rondo ONZ 1| 00-124 | Warsaw DDI +48 22 544 8061 Fax  +48 22 544 8001 M +48 500 000 583 [email protected] http://www.cbre.pl

Hanna Bomba-Wilhelmi CEO

DDI +43 1 586 04 53 - 22    M +43 699 15860412 [email protected] http://regioplan.at

DDI +43 1 586 04 53 - 17   M  +43 699 15860417  [email protected] http://regioplan.at

OTHER FORMATS: NEIGHBOURHOOD CENTRE – often small or very small (below 5,000 sq m of GLA) scheme that serves almost exclusively its immediate catchment and concentrates on a FMCG offer complemented with services or value fashion mer-chandise. Typically anchored by a supermarket grocery store (below 4,000 sq m of GLA)

FOOTFALL – The number of shopping centre visitors, typically reported on a monthly or quarterly basis. Estimated average monthly footfall in Poland reaches 420,000 visits. TENANT MIX – The composition of tenants in a scheme and their position relative to each other. LAYOUT – A shopping centre’s layout is the design in which the interior is set up. It is important to provide good shop window exposure, a good width of the malls and clear communication.

Disclaimer CBRE Sp. z o.o confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.