WBJ: Your experience in CRE goes back to the times before LCP entered the Polish market. What attracted you to the company?

Krystian Modrzejewski: I would say there were two main reasons for joining LCP. Firstly, it was an opportunity to manage a diverse real estate portfolio. It seemed attractive and challenging at the same time. Secondly, LCP is and was one of the biggest private equity funds in Poland, which guarantees quick decision-making process and provides great potential for the development of business. What’s more, it’s a family business with long-term investment plans. The majority of properties that were acquired decades ago remain in the LCP portfolio today. The organization is neither oriented towards quick profits nor selling its properties at an enhanced price just a few years after investment. Instead, it provides management of its real estate, continuous support for the tenants, and care for the consumer needs.

Retail parks and small business units, in which you invest, are said to address the needs of local communities and consumers. How so?

LCP invests mainly in retail parks and standalone supermarket units which are conveniently located throughout Poland, and in warehouse and office projects, called SBU. Small business units, although relatively new in this part of Europe, will be another pillar in the company’s portfolio. Projects of this type proved successful in France and England. SBUs will be developed under the name Multiparcs – a warehouse and office complex with a module area of 200-1500 sqm along with an office part. They are located on the outskirts of larger cities and are easily accessible by car or even by public transport. Thanks to functional technical solutions, SBU facilities can be easily adapted to tenants from various industries: service, commercial, distribution, warehouse, and production. Furthermore, with the high standard of finish, they can also act as online shop storage (such as Dailyfruits in Wrocław) or showrooms. It is an attractive and convenient alternative for small enterprises to locate their business in a modern environment. Demand for both retail parks and SBU projects is increasing as they continue to meet the needs of consumers and retailers.

A HopStop in Siedlce is yet another recently added project on your list of retail parks in Poland.

That’s right. The retail park in Siedlce is a great example of a modern, conveniently-located commercial estate. It’s in close proximity to a newly-built family housing estate and contains such shops as Lidl, Rossmann, Media Expert, and an Orlen petrol station. Those are the shops that stock a range of everyday necessities and provide FMCGs. The retail park segment continues to expand in Poland despite the Covid-19 outbreak and related lockdowns, similarly to the convenience shops situated on the ground floors of apartment buildings.

Those small-format retail complexes legally don’t classify as shopping malls – therefore, they will remain open even during a strict lockdown.

That’s probably the most resilient type of retail estate during the Covid-19 pandemic. They’re either within walking distance or easily accessible by car and with ample outdoor parking space. They offer direct store access, and therefore, relatively low consumer density – that means safer shopping. From a retailer’s perspective, retail parks are an affordable alternative to city center shopping malls or high streets where the rent would be higher. These are the main reasons why we plan to invest €150 million to €200 million over the course of the next two years.

Would you then say that large-scale shopping malls will sooner or later cease to exist in the real estate market?

I doubt it. Shopping malls have a specific role to fulfill in society. Aside from sheer transactional business, they function as a meeting place for friends, a source of inspiration for gift shopping and family entertainment spots. Online shopping isn’t capable of catering to all those needs. Shopping centers are and will be part of the lifestyle of young people. The pandemic burdened the shopping mall sector heavily, though.

Speaking of e-commerce, according to a report from Accenture, about 20 percent of Poles turned to online shopping for the first time in their lives during the lockdown. Do you expect they will come back to the stationary shops?

Online and stationary shopping work best in tandem. It’s all about the synergy. Let’s look at the retail companies that had begun selling their products online years before the pandemic broke out. They keep their brick-and-mortar shops regardless and customers continue to enjoy shopping in person, trying things on, seeking advice from sales assistants just like they enjoy buying online. It’s the experience factor that pulls us to the malls. What’s more, the support of digital transformation in the retail area is truly bonding the online and offline experiences, allowing us to interact with brands virtually in-store and at home. However, we will still meet key needs in traditional stores, which Retail Parks are the optimal representative. The blurred borderline between online and offline shopping will continue to trend in 2021 and beyond with each addressing various needs of retailers and customers.

How different is the Polish commercial real estate market compared to the British one?

When it comes to the sectors and the spectrum of real estate types, we are catching up with the trends visible in the West. Having said that, we have our specific Polish mentality and we much more enjoy shopping as an experience and part of our lifestyle. As for SBUs, they are very popular in the UK and our plan is to introduce them more broadly into the Polish market.

We talked about the transformation in retail. What changes can we expect in the goods delivery sector?

Many delivery chains are still recovering from the impact of the pandemic. This pushed businesses to explore new solutions that could otherwise be considered well ahead of time. I’m talking here about self-driving delivery vehicles that are being introduced and tested in several places across the globe. Such autonomous pods can deliver anything from medicines, clothes, and groceries through the post. Driverless trucks have started to emerge in the freight network. That’s particularly advantageous when finding ways to reduce the risk of virus contraction or battling driver shortage. However, these solutions seem dehumanized and hinder the personal contact between the customer and the seller. That is an issue especially now that we become more and more alienated in our technologically-advanced society. People need contact with others and this is even more visible during the pandemic.

Did the pandemic-induced recession forces you to stall any investment projects?

Yes, we’ve held off any investments in the office real estate sector. It’s hard to predict the demand for office space in the near future. In the other sectors, however, we are not slowing down. We have very ambitious acquisition plans in both the retail park and the supermarket sectors. We are currently opening the first SBU project in Bydgoszcz [northern Poland] and have started the construction of a similar project in Zabrze [southern Poland].

Do you plan to invest in healthcare real estate in the near future?

We’ve considered such a project quite recently and may explore this further at some point again.

Evolution of retail parks

Standard retail parks were originally visited for quick purchases of necessity goods.

Tenants who previously occupied large shopping malls have started moving to retail parks. They want to be closer to their customers and take advantage of the more frequent footfall generated by discount food operators compared to large shopping centers.

Retail parks continue to expand and evolve. New functions have been added to standard retail parks (e.g. gyms, beauty salons, parcel lockers, medical centers, food track parks or restaurants) in response to their local community needs and expectations.

Retail parks withstand the pandemic lockdown. They continue to be a versatile option for businesses at a lower rental rate and with convenient access for customers.