How did the Polish commercial property market perform in 2014? What new trends came to the fore in each sector? Find out the answers to these and to many other questions in the latest report “Marketbeat Poland Spring 2015” published by a global real estate services firm Cushman & Wakefield. It presents an annual review of the office, retail and industrial sectors and the commercial investment market in Poland, and an outlook for the Polish commercial property market.
“Marketbeat Poland Spring 2015” presents an overview of the Polish office, retail and industrial markets in 2014 and an outlook for the nearest future.
KEY REPORT FINDINGS:
Commercial investment market:
- With a 43% market share in the transaction volume Poland is strongly ahead of other CE countries.
- The industrial and warehouse sector turned over EUR 740m, an all-time high.
- The largest deal was the sale of Rondo I office building in Warsaw.
- The public sector’s growing demand for office space.
- Rents remained flat in most locations.
- The emerging markets of Lublin and Szczecin continue to grow.
- Nearly half of new retail space delivered in cities below 100,000 inhabitants.
- Food retailers focused on store upgrades and innovations.
- Longer marketing period for new retail schemes.
- Threefold increase in new warehouse supply compared to 2013.
- Take-up reached 2,356,000 sq m.
- Increasing industrial space development in the regions on the back of improvements in transport infrastructure.
KEY REPORT FIGURES:
- The volume of transactions on the Polish commercial investment market hit EUR 3.13bn in 2014.
- 1 million sq m of warehouse space was delivered in Poland in 2014.
Charles Taylor, Managing Partner of the Polish office of property consultant Cushman & Wakefield, said: “The Polish commercial property market continues to grow dynamically, driven by attractive economic conditions which are fuelling occupier demand. Development activity is generally high, and Poland continues to attract international capital, with EUR 3.13bn transacted in 2014. Regional cities are expected to benefit from increased investor interest in the coming year.”
With the volume of transactions in 2014 at EUR 3.13bn the Polish commercial investment market posted another year of rising investment activity. This gave Poland a 43% market share in the CE region, strongly ahead of the Czech Republic (26%) and Romania (15%).
Although investor demand for properties on the Polish market shows no signs of slowing down, transaction volumes are growing at a slower rate of 0.3% compared with previous years, largely due to the shrinking supply of the most sought-after prime assets.
With a surge in investment activity the Polish industrial and warehouse sector turned over EUR 740m, which was an all-time high, outperforming the retail sector for the first time. The office market, however, was the best performer with the volume of transactions closed in 2014 at EUR 1.69bn, representing a rise of more than 40% compared with 2013.
Piotr Kaszyński, Partner, Head of Capital Markets, Cushman & Wakefield, said: “Investor interest in Polish commercial properties is expected to grow stronger in 2015 on the back of improving economic fundamentals of Poland catching up with Western Europe and withholding the capital in Central Europe due to the difficult situation in Ukraine. Investment volumes on the Polish market are likely to rise this year provided that there is sufficient supply of prime assets.”
2014 was exceptionally favourable for office tenants who took advantage of the strong supply pressure and rising vacancies in Warsaw to secure very good lease conditions on the office market. Absorption remained relatively low particularly in downtown Warsaw. However, the number of leases began to rise in the last two quarters of 2014 and this upswing in leasing activity is expected to continue at least until 2018. Take-up in Warsaw totalled 609,200 sq m in 2014 with the growing demand for office space coming from the public sector. Despite the imbalance in demand and supply, headline rents remained flat in most locations in the capital city. In 2014, more than 279,100 sq m of modern office space came onto the Warsaw market, most of which in the South-Western zone and the Fringe. The largest completions included Gdański Business Center 1 (buildings A and B), Eurocentrum Office Complex I and Warsaw Spire B.
In 2014, new office supply in Poland’s six regional cities, including Krakow, Wrocław, Tricity, Poznań, Katowice and Łódź, totalled more than 323,600 sq m compared with 262,000 sq m in 2013. The regional markets, however, still account for just around 64% of Warsaw’s total office stock. Last year’s total take-up in the regional cities reached 378,900 sq m, up by nearly 16.5% on 2013, with the largest leasing volumes in Krakow and Wrocław. The emerging markets of Szczecin and Lublin are also growing. In 2014, new space absorption in Lublin reached 18,000 sq m, representing almost a twofold rise on the total absorption level noted in the last three years. By contrast, the volume of absorbed space in Szczecin reached nearly 30,000 sq m since the beginning of 2013. Prime headline rents remained flat in regional cities, ranging from EUR 13/sq m/month in Łódź to EUR 15/sq m/ month in Wrocław.
Richard Aboo, Partner, Head of Office Department, Cushman & Wakefield, said: “Despite the imbalance in demand and supply, rents remained stable in most locations in Warsaw. Based on developers’ forecasts, more than 300,000 sq m of office space is likely to come onto the Warsaw market in 2015. High absorption and the public sector’s growing demand will be the key drivers of the office market growth. On the regional markets the average vacancy rate has fallen to 9.2%. Krakow, Wrocław, Tricity and Łódź noted substantial growth of transaction volume in 2014. Supply grew by 23% on regional markets. Szczecin and Lublin are particularly attractive to both tenants looking for cheap highly-qualified labour and developers seeking to secure land at competitive prices. There is a continued high demand from the BPO sector.”
New retail space supply in 2014 totalled 474,700 sq m, down by 23% on 2013’s supply, as last year development activity focused on smaller retail schemes. Shopping centres accounted for 81% of the new space provision in 2014 with only two large openings: Atrium Felicity in Lublin (75,000 sq m) and Galeria Warmińska in Olsztyn (41,500 sq m). In 2014, 48% of new retail space was delivered in cities below 100,000 inhabitants compared with 24% in the previous year. The eight largest Polish cities accounted for only 42,000 sq m, equating to 9% of last year’s total supply, compared with nearly 70% in 2013. Occupier demand shows strong variations and depends on shopping centre density, scheme quality and space availability. The shopping centre density in the eight conurbations is the highest in Wrocław and Poznań, and the lowest in Warsaw and Szczecin. The record high density in Poland is, however, in smaller cities such as Zgorzelec, Opole, Nowy Sącz and Rzeszów, where shopping centre space provision is much higher than 1,000 sq m per 1,000 inhabitants. The highest rents are in Warsaw’s prime shopping centres averaging EUR 80–90/sq m/month for a fashion store sized between 100 sq m and 150 sq m. Rents average EUR 35–45/sq m/month in the other seven conurbations and EUR 20–25/sq m/month in small and medium-sized cities.
The segment of retail parks continued to show strong momentum with around 110,000 sq m delivered onto the Polish retail market in 2014, of which 35% or 38,000 sq m came onto the market through redevelopments and extensions of existing schemes in Płock, Krosno and Sochaczew. The remaining 72,000 sq m was delivered across twelve retail parks averaging 5,800 sq m each. At the end of 2014, two new outlet centres were also opened: Outlet Center in Lublin and Outlet Białystok. In the food sector the expansion of discount stores slowed down in 2014 in contrast to the fast growth of convenience store chains such as Żabka, Freshmarket, Carrefour Express and Odido. The hypermarket sector was in continued stagnation throughout 2014.
Marek Noetzel, Partner, Head of Retail Department, Cushman & Wakefield, said: “In 2014, tenants focused on well-established retail schemes offering high footfall and satisfactory revenues. Re-marketed shopping centres were an attractive alternative to newly-constructed space. Food chain operators, on the other hand, tend to focus more on upgrading their existing store networks to bring them in line with modern customer expectations than on aggressive expansion. Due to the current demand level, the marketing period for new schemes has become longer. Around 900,000 sq m of retail space is currently under construction. More than 62% or around 563,000 sq m of this total is expected to complete in 2015. Twenty new shopping centres, 4 retail parks and one outlet centre are scheduled to open this year. Additionally the 2015 development pipeline includes extensions of four existing shopping centres and one retail park.”
Development activity picked up strongly on the Polish warehouse market in 2014 with more than one million sq m of new industrial space delivered to the market. This represents a threefold increase compared to the new supply noted in 2013. Take-up rose strongly to 2.36 million sq m, which pushed the vacancy rate down by 4 percentage points to 6.8%. At the end of 2014 total modern warehouse stock in Poland reached 8,850,000 sq m.
Despite the considerable amount of warehouse space under construction, no rise in vacancies is expected as most schemes are either BTS projects or have secured substantial pre-lets.
The highest concentration of warehouse space is in the Warsaw region (around 31% market share), but improvements in transport infrastructure have led to increasing industrial space development in the regions such as Upper Silesia, Central Poland, Poznań and Wrocław, which account for nearly 60% of Poland’s total stock.
Headline rents remained flat or fell slightly in the core warehouse markets in Poland. The highest rents were posted in Warsaw’s inner city (EUR 4.4–5.5/sq m/month) while the lowest were in Central Poland (EUR 2.4–3.95/sq m/month) and in the Warsaw suburbs (EUR 2.4–3.8/sq m/month).
Tom Listowski, Partner, Head of Industrial Department & CEE Corporate Relations, Cushman & Wakefield, said: “The performance of the Polish warehouse market in 2014 was almost on par with the demand and development activity noted in the boom years of 2007-2008. In 2014 we noticed very high levels of tenant demand and construction activity in the core industrial sub markets however also witnessed a number of major BTS projects commenced or handed over. Logicor, Blackstone’s European logistics platform, became the third largest industrial market player in Poland following its acquisitions in 2014. New lease agreements accounted for 60% of all transactions, indicating continued warehouse sector growth in Poland. At the end of 2014 some 675,000 sq m of modern warehouse space was under construction, over 25% more than at year-end 2013, with most of the projects being developed in the Poznań region and Upper Silesia. Developer activity is also increasing in less developed markets such as Tricity, Lublin and Szczecin.”
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