Small cities on the Polish retail map 30,000-50,000 inhabitants

Small cities on the Polish retail map 30,000-50,000 inhabitants MARCH 2015

Report Small cities on the Polish retail map was jointly prepared by Colliers International and GfK Polonia. Colliers International Research and Consultancy Services The Research and Consultancy Services department at Colliers International undertakes research and advisory services for clients in the Polish commercial real estate market, in particular office, retail and industrial. Our knowledge is supported by years of experience and analytical methods, which support our clients in their decision-making processes as well as in identifying opportunities, threats and possible scenarios resulting from changing market conditions. Services provided by the department include economic analysis and market studies of the commercial real estate market with respect to future market trends, feasibility studies, analysis, investment strategies, location analysis etc. Our database includes the most up-to-date information on the commercial real estate market in Poland and our close cooperation with Colliers agency departments allows for a better understanding of the individual needs of our customers. GfK Polonia Customer Analytics & Sales Strategies Department The Customer Analytics & Sales Strategies Department combines within its competence advisory services for the commercial real estate market with consumer research. This integration of location knowledge with analyses of the shopping habits of consumers in different retail facilities enables a comprehensive valuation of commercial potential at every phase of its life to be made. We perform research and analysis which support the planning and ongoing management of large retail sites (impact area analysis, turnover potential assessment, market development scenarios, surveys, mystery shopping projects, discussion groups) and retail chains (elements of expansion strategy and turnover potential estimation). CONTACT: Dominika Jędrak DIRECTOR RESEARCH AND CONSULTANCY SERVICES dominika.jedrak@colliers.com +48 666 819 242 Katarzyna Michnikowska SENIOR ANALYST RESEARCH AND CONSULTANCY SERVICES katarzyna.michnikowska@colliers.com +48 607 559 587 CONTACT: Przemysław Dwojak DIRECTOR CUSTOMER ANALYTICS & SALES STRATEGIES DEPARTMENT przemyslaw.dwojak@gfk.com +48 502 196 091 Ewa Wasilewska CUSTOMER ANALYTICS & SALES STRATEGIES DEPARTMENT ewa.wasilewska@gfk.com +48 22 43 41 481 1

Summary The estimation of a city s potential for new commercial investments is a complex and always very individual task. Investment decisions in every case should be made after a detailed analysis of the, an analysis of the existing commercial offer, the impact area of a project, consumer profiles, their purchasing power, shopping habits, etc. The success of an investment may also depend on unusual factors, distinctive only for a particular market or location. This report does not aspire to be a comprehensive advisory publication. The valuations prepared in the report, based on selected indicators, are only for illustration purposes. It aims more to provoke discussion on the potential of small markets, rather than clearly define new investment areas. Data provided in the report shows the situation at the end of 2014. The report does not exhaust the entire range of issues and aspects in respect of the subject. Investment advice is not the intention of this publication, so it should not be considered as a basis for any business decision. The map of new commercial destinations in Poland identifies the investment potential and attractiveness of smaller cities. Three retail destinations have been marked in blue, orange and grey. They indicate existing opportunities and threats. The colours of the destinations relate to the degree of difficulty of each destination: blue represents a low degree of difficulty, which in business terms indicates great potential and market attractiveness. An orange destination from an investment point of view represents slightly lower potential and attractiveness. Grey indicates the highest level of difficulty and cities marked black were assessed as rather unattractive for new commercial investments. 56 cities with populations in the range 30,000-50,000 inhabitants were analysed (and also Zakopane); selected real estate market and socio-economic indicators were assessed; cities were categorised in terms of new commercial investments into: high attractiveness, average attractiveness and low attractiveness; 15 cities of high potential for new commercial investments were distinguished: Bochnia, Cieszyn, Krosno, Kwidzyn, Łuków, Mińsk Mazowiecki, Mława, Oleśnica, Oława, Otwock, Skierniewice, Sopot, Śrem, Świnoujście and Zakopane; 15 cities of limited potential for new commercial investments were distinguished: Bielawa, Chojnice, Chrzanów, Ciechanów, Dębica, Jasło, Kutno, Nysa, Oświęcim, Puławy, Radomsko, Sieradz, Skarżysko-Kamienna, Sochaczew and Starogard Gdański; 2

Methodology Cities chosen for the assessment This analysis covers 56 cities with a population in the range 30,000-50,000 inhabitants, not including those situated in an area direct influenced by the largest urban agglomerations. This assumption was dictated by the fact that the shopping centers in satellite areas serve consumers from the whole agglomeration, not only from a particular city. This does not mean that in satellite cities there is no space for new commercial centers, including retail parks and convenience shopping centers. The authors intention was only to note that the potential of those sorts of locations should be analysed according to the other methodology than that adopted for this report. An exception to the rule is Sopot, which constitutes an integral part of the Tricity agglomeration, but at the same time it is an independent commercial market and a strong tourist resort. The analysis also included Otwock, which in spite of its location in the Warsaw agglomeration is an independent commercial centre of local range. Among the cities analysed, eight have tourist or border status. Zakopane was also included in this group because of its specific nature, despite the fact that it does not meet the population criterion. The analysis carried out does not take into consideration the potential of the status of a tourist or border city, but in each case this fact was given an appropriate annotation. A city s border location could have both advantages and disadvantages for the location of a commercial investment. The methodology adopted by the authors does not allow cities to be rewarding in terms of their attractiveness for commercial investment due to their border location. Also, tourist cities, characterised by the seasonality, are not guaranteed automatically higher attractiveness for commercial investment. In border and tourist cities there is a place for new commercial investments including retail parks and convenience shopping centres, but their potential demands additional research and analysis. Map of analysed cities 30,000 50,000 inhabitants Kołobrzeg* Świnoujście* Szczecinek Lębork Chojnice Sopot* Starogard Malbork Gdański Kwidzyn Ostróda* Iława Mława Ciechanów Augustów* Śrem Nowa Sól Żary Bolesławiec Oleśnica Zgorzelec* Oława Dzierżoniów Brzeg Bielawa Nysa Wołomin Sochaczew Mińsk Otwock Mazowiecki Kutno Żyrardów Łuków Skierniewice Zduńska Wola Sieradz Puławy Radomsko Myszków Skarżysko -Kamienna Olkusz Wodzisław Chrzanów Śląski Oświęcim Bochnia Cieszyn* Czechowice-Dziedzice Żywiec Nowy Targ Zakopane* Dębica Kraśnik Tarnobrzeg Jasło Krosno Jarosław Sanok * border or tourist cities 3

Factors chosen for attractiveness assessment In the analysis of the potential of selected cities for new commercial investments, two groups of indicators were taken into consideration: commercial real estate market factors, socio-economic factors. COMMERCIAL REAL ESTATE MARKET FACTORS When assessing the commercial real estate market, the present volume of the modern commercial stock and the supply of stock under construction were taken into consideration. Commercial sites offering less than 2,000 m 2 Gross Leasable Area (GLA) were included in the analysis. Additionally, the current commercial offering in the examined cities and sites were analysed thee presence of selected national and international chains from sectors such as: fashion, footwear, health and beauty, electronics, multimedia and gastronomy were investigated. In addition, the level of asking rents for premises of 100-150 m 2 GLA, designed for the needs of the fashion segment, were compared. After carrying out the quality assessment, it was assumed that markets with an existing stock smaller than 7,000 m 2 GLA are attractive for new commercial investments, markets between 7,000-14,000 m 2 GLA are moderately attractive and those with a GLA larger than 14,000 m 2 GLA are not very attractive. The same ranges were also assumed for stock under construction. On this basis, markets of high, average and low and potential for new commercial investments were identified. LOW AVERAGE HIGH EXISTING STOCK (m 2 GLA) smaller than 7,000 7,000-14,000 larger than 14,000 STOCK UNDER CONSTRUCTION (m 2 GLA) smaller than 7,000 7,000-14,000 larger than 14,000 4

SOCIO-ECONOMIC FACTORS While assessing the socio-economic parameters, the following data measuring wealth was taken into consideration: current population, population changes in last four years, % of unemployed in production-age, sum of total purchasing power, purchasing power parity per capita and sum of retail trade turnover. Statistical data from Central Statistical Office of Poland and GfK Polonia were used in the analysis. For each factor numerical ranges were identified. On this basis, markets with good, moderate and weak socio-economic perspectives and potential for new commercial investments were identified. GOOD MODERATE WEAK CURRENT POPULATION 50,000 43,501 43,500 35,001 35,000 30,000 POPULATION DYNAMICS IN LAST FOUR YEARS 0.5% -0.1% -0.2% -0.5% -0.6% -0.9% % OF UNEMPLOYED IN PRODUCTION-AGE 4% 7% 8% 10% 11% 14% SUM OF TOTAL PURCHASING POWER (PLN MILLION) 1,500 1,151 1,150 861 860 670 PURCHASING POWER PER CAPITA (PLN) 35,000 25,001 25,000 22,501 22,500 20,000 PURCHASING POWER INDEX PER CAPITA 141 101 100 95 94 85 SUM OF RETAIL TRADE TURNOVER (PLN MILLION) 740 451 450 311 310 145 5

Attractiveness ranking according to the two groups of factors Ranking according to commercial real estate market factors Taking into consideration only parameters from the real estate market, low can be seen in 15 cities: Augustów, Cieszyn, Dzierżoniów, Jarosław, Kraśnik, Lębork, Łuków, Mława, Myszków, Nowa Sól, Otwock, Sopot, Śrem, Tarnobrzeg and Zakopane. In those cities there is a shortage of modern commercial stock and the amount of stock under construction is very limited. In that group there are four tourist and border city (Augustów, Cieszyn, Sopot, Zakopane), whose status demands additional analysis to fully estimate their potential. Among the cities analysed, in 17 strong could be observed. The largest volume of modern commercial space is in Zgorzelec (Galeria Słowiańska, Zgorzelec Plaza), Sochaczew (Multishop, Sonata Park), Chojnice (Brama Pomorza) and Dębica (Galeria Raj, Galeria Dębicka). There is a high volume of commercial space under construction in Wołomin (Fabryka Wołomin) and Starogard Gdański (Galeria Neptun). The remaining 24 locations are cities of average in the commercial real estate market. In each of them a modern commercial building exists or is under construction. Therefore, starting a new investment demands finding a niche in the market and creating a complementary commercial offer. LOW Bielawa Bochnia Bolesławiec Brzeg Chrzanów (city) Iława Jasło Krosno Kwidzyn Malbork Mińsk Mazowiecki Nowy Targ Nysa (city) AVERAGE Oleśnica Olkusz (city) Oława Ostróda* Sanok Skarżysko -Kamienna Skierniewice Szczecinek Świnoujście* Zduńska Wola Żary Augustów* Cieszyn* Dzierżoniów Jarosław Kraśnik Lębork Łuków Mława Myszków Nowa Sól Otwock Sopot* Śrem (city) Tarnobrzeg Zakopane* 1 Chojnice Ciechanów Czechowice -Dziedzice (city) Dębica Kołobrzeg* Kutno Oświęcim Puławy STRONG 2 3 Attractiveness of cities for new investment - commercial real estate market factors Radomsko Sieradz Sochaczew Starogard Gdański Wodzisław Śląski Wołomin (city) Zgorzelec* Żyrardów Żywiec 6 * border or tourist cities

Ranking according to socio-economic factors Taking into consideration only socio-economic parameters, 15 cities have good : Bochnia, Czechowice-Dziedzice, Iława, Kołobrzeg, Krosno, Kwidzyn, Mińsk Mazowiecki, Oleśnica, Oława, Otwock, Skierniewice, Sopot, Świnoujście, Wołomin and Żary. Those cities are characterised by a relatively large and growing retail market, a strong labour market without structural unemployment, relatively high purchasing power and a sum of retail trade turnover. This group includes three tourist cities (Kołobrzeg, Sopot, Świnoujście), whose status demands additional analysis to fully estimate their potential. Among the analysed cities, there are 15 with weak prospects for socio-economic development. Those cities are depopulating, the inhabitants have difficulties finding employment and low purchasing power translates into low revenues in the retail market. The remaining 26 cities have moderate socio-economic growth prospects. The demands of the retail investment market mean that a niche must be found and a suitable commercial, service and gastronomic offer must be submitted. GOOD MODERATE Augustów* Bolesławiec Chojnice Ciechanów Cieszyn* Dębica Lębork Łuków Malbork Mława Nowy Targ Ostróda* Oświęcim Puławy Sanok Sieradz Sochaczew Starogard Gdański Szczecinek Śrem (city) Tarnobrzeg Wodzisław Śląski Zakopane* Zgorzelec* Żyrardów Żywiec Bochnia Czechowice-Dziedzice (city) Iława Kołobrzeg* Krosno Kwidzyn Mińsk Mazowiecki Oleśnica Oława Otwock Skierniewice Sopot* Świnoujście* Wołomin (city) Żary 1 WEAK Bielawa Brzeg Chrzanów (city) Dzierżoniów Jarosław Jasło Kraśnik Kutno Myszków Nowa Sól Nysa (city) Olkusz (city) Radomsko Skarżysko-Kamienna Zduńska Wola 2 3 Attractiveness of cities for new retail investment - socio-economic factors 7 * border or tourist cities

Overall ranking of attractiveness As a result of the combination of real estate market and socio-economic factors, an overall ranking of attractiveness was created, which obviously differs from the rankings which take into consideration the analysis of those factors separately. Some of the cities, despite the low level of in the retail market, are characterised by weak socio-economic conditions, which moves them down in the final ranking and makes them not very attractive for commercial investments. However, the other cities are developing so rapidly that even a high supply of commercial space is not a restriction for new investments. HIGH ATRACTIVENESS AVERAGE ATRACTVENESS Augustów* Bolesławiec Brzeg Czechowice -Dziedzice (city) Dzierżoniów Iława Jarosław Kołobrzeg* Kraśnik Lębork Malbork Myszków Nowa Sól Nowy Targ Olkusz (city) Ostróda* Sanok Szczecinek Tarnobrzeg Wodzisław Śląski Wołomin (city) Zduńska Wola Zgorzelec* Żary Żyrardów Żywiec Bochnia Cieszyn* Krosno Kwidzyn Łuków Mińsk Mazowiecki Mława Oleśnica Oława Otwock Skierniewice Sopot* Śrem (city) Świnoujście* Zakopane* 1 LOW ATRACTIVENESS Bielawa Chojnice Chrzanów (city) Ciechanów Dębica Jasło Kutno Nysa (city) Oświęcim Puławy Radomsko Sieradz Skarżysko-Kamienna Sochaczew 2 3 Attractiveness of cities for new retail investment * border or tourist cities 8

Attractiveness of cities of 30,000-50,000 inhabitants for new retail investments The overall analysis of the factors selected indicated 15 cities of high potential for new commercial investments. Among the most attractive cities, 7 have a significant shortage of modern commercial space: Cieszyn, Łuków, Mława, Otwock, Sopot, Śrem and Zakopane. What is interesting is that despite the relatively high level of in the retail market, due to promising socio-economic prospects the group of the cities with the highest potential is joined by Bochnia, Krosno, Kwidzyn, Mińsk Mazowiecki, Oleśnica, Oława, Skierniewice and Świnoujście. Świnoujście* Kołobrzeg* Szczecinek Chojnice Lębork Sopot* Starogard Gdański Malbork Kwidzyn Iława Ostróda* Augustów* On the other hand, considering the unfavorable development trends, some locations were removed from the group of the most attractive cities despite the low degree of competitiveness: Augustów, Dzierżoniów, Jarosław, Kraśnik, Lębork, Myszków, Nowa Sól and Tarnobrzeg. Fifteen cities have the lowest potential for new commercial investments and nine of them are cities with a large volume of commercial space (existing or under construction): Chojnice, Ciechanów, Dębica, Kutno, Puławy, Radomsko, Sieradz, Sochaczew and Starogard Gdański. Despite the oversupply, due to the favorable some cities were not added to the group of the least attractive locations: Kołobrzeg, Wodzisław Śląski, Wołomin, Zgorzelec, Żyrardów and Żywiec. On the other hand, considering the socio-economic situation, despite the relatively low supply, some cities joined the group of the least attractive cities: Bielawa, Chrzanów, Jasło, Nysa, Oświęcim and Skarżysko-Kamienna. The remaining 26 cities have moderate potential for new commercial investments, resulting on one hand from relatively high and on the other hand from the average socio-economic situation and the lack of perspectives for rapid improvement. Legend: attractive city for new retail investment moderately attractive city for new retail investment not very attractive city for new retail investment * border or tourist cities Żary Zgorzelec* Nowa Sól Bolesławiec Śrem Dzierżoniów Bielawa Oleśnica Oława Brzeg Nysa Sieradz Wodzisław Śląski Cieszyn* Zduńska Wola Myszków Czechowice -Dziedzice Żywiec Kutno Radomsko Olkusz Oświęcim Chrzanów Sochaczew Nowy Targ Mława Żyrardów Skierniewice Zakopane* Ciechanów Bochnia Skarżysko -Kamienna Wołomin Otwock Mińsk Mazowiecki Dębica Puławy Tarnobrzeg Jasło Krosno Łuków Kraśnik Sanok Jarosław 9

Record holders in the analysed group of cities 1. Puławy the most populated city 2. Mińsk Mazowiecki the fastest population growth over the period 2010-2013 3. Sopot the least number of unemployed people 4. Sopot the highest purchasing power per capita 5. Otwock the most money spent on shopping 6. Zgorzelec the highest modern retail space supply 7. Zgorzelec the most saturated by modern retail space 8. Wołomin the most amount of modern retail space under construction 9. Otwock the highest purchasing power per m 2 GLA of existing stock www.gfk.pl www.colliers.pl