Warehouse, Poland

Property prospering in Poland

By Andrzej Tokaj and Konrad Pecelerowicz, Penteris

The easing up of Covid-19 in Europe accompanied renewed hope in Poland that the commercial property market would pick up. Hopes were tempered when interest rates began to creep up towards the end of 2021.

However, the property market did not give in, and bounced back at the beginning of 2022. Investment in commercial real estate hit EUR 1.7 billion in Q1 and this included Google’s landmark acquisition of an offce building in the heart of Warsaw for EUR 600 million.

Positive prognosis

Cost pressures and outside factors have dampened the hitherto energetic Polish market, especially when Russian forces attacked Ukraine. Yet positivity prevails.

The beginning of 2022 saw the closing of transactions initiated in the previous year. The warehousing sector continued to boom, recording transactions worth EUR 200 million. This was only to be expected after two years of peak demand for warehouse and logistics real estate. Transactions on the offce market generated over EUR 780 million, the highest quarterly result since 2019, and the corresponding figure for the retail real estate sector was around EUR 700 million, thanks to large individual transactions.

Growing warehouse sector

Approximately 75% of lease transactions in the last few months were a result of new contracts. Demand for warehouses is now higher than the pre-pandemic average. A positive trend can be seen, with vacancy rates reaching an all-time low of 3.3%. Growing demand for new warehouses is largely attributable to retail chains and the logistics industry. Expert forecasts suggest that, as long as warehousing projects proceed according to schedule, the supply of new warehouses should rise by more than 20% in a matter of a year.

Poland’s warehousing sector continues to attract foreign investment and can be expected to grow further at a steady pace. The experience of Covid-19 and the war in Ukraine have showcased the need for shorter, intelligent supply chains, which are essential to harness this sector’s growth potential.

Stabilising the office sector

Statistics from 2022 show that offce space developers are hesitant to take risks, and with the advent of remote and hybrid work, growing project financing costs, and cost pressures, experts believe that demand for offce space is bound to cool down in the medium term. Even so, Q1 saw a marked increase in offce space supply in Poland’s main regional centres. In the short and medium term, a steady supply of new offce space can be expected.

Rising project development costs exacerbated by the war in Ukraine have translated into a slight rise in offce rent rates in prime locations. Cost factors and reduced availability of premium offce space are expected to lead to further increases.

Changing retail sector

The total area of modern retail space in Poland exceeded 15.5 million square meters in Q1. Over 350,000 square meters of this space is currently under construction, with opening dates scheduled for 2022 and 2023. It is worth noting that over half of these retail space developments are located in smaller centres, in markets with up to 100,000 inhabitants. These are mostly retail parks and small shopping centres. This trend is likely to persist for the foreseeable future.

Over the same period, the popularity of big box retailers fell noticeably. Hypermarkets’ share of the food market is expected to decrease even further, from approximately 9% in 2022 to less than 7% in 2027. This is largely due to changing consumer preferences, with ever-smaller households prioritising proximity and convenience over the low prices made possible by the economies of scale. There is also a positive feedback loop, with newly developed small retailers (supermarkets and discount stores) taking up less space, meaning they can be situated in closer proximity to prospective customers.

Internationalising the residential sector

Foreign investor interest in the Polish residential property market has become more prominent. Foreign investment funds are allocating assets which would have previously been invested in offce and retail space into residential projects meant for lease. Experts estimate that by the end of 2023 investment funds will have purchased as many as 23,000 residential units, mostly from the primary market, and this number can be expected to triple in subsequent years.

Final forecast

We can expect lower value transactions in the commercial real estate market in the short and medium term. The ongoing situation in Ukraine and growing investment cost pressures are crucial factors when analysing current market conditions in the CEE region.

In the long term, with Russian aggression seemingly contained within Ukrainian territory, the reduced availability of new projects in the main segments of the commercial real estate market, coupled with increased demand, will continue to stimulate investment in Poland. We are already seeing signs of interest, not only on the part of western European investors but also from other CEE markets (notably Hungary and the Czech Republic), the Far East and the United States, which demonstrates that the market in Warsaw and beyond has become increasingly more competitive.

For proof of foreign investor confidence, one does not have to look much further than the announcements of new offce buildings being developed in and around Warsaw. The potential of all segments within the Polish property market – as seen in lease costs, demand forecasts, and attractive labour costs – means that we can be hopeful about the future.


Andrzej Tokaj

Andrzej Tokaj

GGI member firm
Penteris
Law Firm Services
Warsaw, Poland
T: +48 22 257 83 00
E: This email address is being protected from spambots. You need JavaScript enabled to view it.
W: penteris.com
Konrad Pecelerowicz

Konrad Pecelerowicz

GGI member firm
Penteris
Law Firm Services
Warsaw, Poland
T: +48 22 257 83 00
E: This email address is being protected from spambots. You need JavaScript enabled to view it.
W: penteris.com
 


Published: GGI Insider, No. 120, July 2022 l Photo: netsay - stock.adobe.com

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