Contributed by Mira Kantor-Pikus, Partner, Equity, Debt & Structured Finance, Capital Markets at Cushman & Wakefield.
Strong-performing retail properties are amongst the most sought-after assets by investors. In 2017, they accounted for 37 percent or €1,877,000 of Poland’s total investment volume that surpassed €5 billion. Outlet centers which typically generate most of their footfall at weekends may see a decrease in turnover levels. Theoretically, tenants could demand lower rents, but pressure on lower rental rates is unlikely due to strong occupier demand for retail space in prime locations. By contrast, food retailers won’t be affected by the Sunday trading ban as they will see an increase in sales on Fridays, Saturdays and Mondays. Café and restaurant operators may, however, record slightly lower revenue. Some tenants, particularly at less successful retail schemes, may be tempted to use the ban as a pretext to renegotiate rents.
In capital terms, prices of strong-performing assets will prove resilient and attractive to prospective buyers while those of less successful schemes are likely to come down slightly.
Another factor that will have an impact on anticipated property values is the commercial real estate tax. It depends on the property’s book value and is classified as an expense when the property owner pays no income tax due to sustained losses or pays monthly income tax advances amounting to less than 0.035 percent of the initial property value in excess of PLN 10 million. This may be the case with retail schemes recording high vacancy rates or weak performance where buyers are likely to demand lower prices.
Active property management and an optimum tenant-mix are critical to minimizing the negative impact of the above changes. Property managers should focus on maintaining or improving footfall levels and ensuring streams of income from various sources, including through the use of modern technology.