Retail: Asset enhancement in Central Eastern Europe

Retail: Asset enhancement in Central Eastern Europe

In this paper, Peter Wojtusiak, Chapman Taylor Director based in our Prague studio, examines the growing trend of asset enhancement in the CEE retail sector and how giving tired buildings a ‘facelift’ makes business sense.

As Architects who pride ourselves on our ability to understand our client’s business, we make sure that the solutions which we provide are not only aesthetically pleasing, but also commercially viable, because if our clients do well, we do well.  After all, what use is a building which looks nice but is a commercial failure. Even galleries and museums have to attract visitors otherwise they close. Ultimately, everyone loses if we fail as Architects to maximise the opportunity for a project to become a success commercially as well as aesthetically.

In this paper I want to discuss the benefits of giving retail buildings past their sell by date an appropriate makeover and how asset enhancement can be critical in this sector.

Advantages & disadvantages of asset enhancement?

The biggest advantage of asset enhancement is the ability to unlock the value which is inherent in the asset and squeezing out its viability by prolonging its lifespan.  At the same time this achievement is complementary with one of the central concerns for the property industry; sustainability.

As we know, one of the best ways to reduce the impact on the environment and resources is to recycle and reuse, this also applies to buildings.  Up to 50% of the energy in the lifecycle of a building goes into the construction phase versus the actual occupancy / operations phase, and so is especially pertinent to the debate on whether to build new or reuse existing buildings.  Statistics from the EU and US indicate that buildings account for approximately 40% of total energy consumption as well as approximately 50% of total global CO2 emissions, therefore the industry has a huge responsibility as well as capacity for significant influence in the environmental debate.

Why the growing need to enhance in Central & Eastern European markets?

Retail enhancements are predominantly driven by the need to keep up-to-date with the latest trends and are often initiated by clients who wish to maintain an advantage on the market and less to do with the amount of new retail space which is coming online, although refurbishments by the competition of course do influence the decision making of shopping centre owners.  

“We’ve noticed a perceptible reduction in the pipeline of new shopping centres as CEE retail markets become saturated.  Indeed, we believe there will be less and less entirely new projects in the region in the foreseeable future and a movement towards improving the quality and expansion of existing assets."

Is it an overall European trend or specific to the CEE market?

Recent discussions with our colleagues in the UK, Spain, Italy, France and Poland suggest that asset enhancement is a trend right across Europe.  Location is of course the major advantage that existing properties have over new ones.  In certain areas of Prague such as Karlin, Smichov and Bubny, and in Warsaw’s Wola, Mokotow and Bielany districts there are still many Brownfield (and even Greenfield) sites available which are perfect for new developments, whereas in many Western European cities relatively few well located development opportunities remain, hence asset enhancement may be the only option for creating modern commercial space.  For the foreseeable future in Prague and Warsaw however, assets that are well located, will remain prime candidates for asset enhancement, whereas less well located properties are likely to deteriorate further as their refurbishment will not be economically viable.

“Retail enhancements can make a significant impact on the customer experience of a shopping centre, and if a customer feels comfortable in their environment they are more likely to spend more time there, which translates into increased spend and turnover for tenants and therefore an increase in the value of the asset for investors.”

Well placed shopping centres with good existing footfall will always be appropriate targets for asset enhancement either through upgrades or extensions, as well as reconfigurations of existing space.  Clients are amazed by the results when we reconfigure existing underperforming areas to make them vibrant and appealing, attracting customers and overall increasing the income from the asset.

We recently completed several retail asset enhancement projects in the Czech Republic including Phase I of Letnany Shopping centre as well as Metropole Zličin (where some works are still being implemented progressively).  Some of our past projects include Tesco My and Eden Shopping centre, both in Prague, and we are currently in the permitting phase for a major extension and refurbishment of Kralovo Pole shopping centre in Brno.

Future trends and demand

The financial crisis seems to have been a catalyst for driving demand for asset enhancement projects as development finance (and indeed demand) was constrained.  What we are seeing now is the result of the situation on the market 4-5 years ago, when investors were forced to hold onto assets which they may have preferred to sell, but as asset prices were subdued and therefore their options were to either keep and work with the asset or to divest at a loss, many chose to keep and work with what they had.  In most cases asset enhancement budgets could be scratched together without going cap in hand to a bank, and in cases where opportunistic investors bought assets which needed some work, they factored in the capital expenditure of upgrading the asset to bring it upto market standards at the outset, the increased asset enhancement workload is therefore the result of the strategy of both of these investor profiles a few years ago.

Even though development finance has now loosened somewhat,  I don’t believe we will see a significant amount of new shopping centres in major cities in the Czech Republic in the foreseeable future.  Our own Central Kladno shopping centre which opened in March is forecast to be the only new centre to open in the Czech Republic during 2015.  I therefore believe that demand for retail asset enhancement will continue to grow as more and more centres in CEE become outdated in their commercial and customer appeal and require work to bring them up to market requirements and customer expectations.


Roger Wilson

About the author

Peter Wojtusiak

B.A, Grad.Dip. Des.St., B.Arch. MBA
Director, Prague


Peter has been based in the Prague studio with Chapman Taylor for 7 years and has contributed significantly to raising the profile of the firm and expanding business in Central Europe. His expertise lies in Masterplanning, Residential, Retail and Office projects, and his skills and knowledge cover the entire life cycle of project development.

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