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22
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22 (117) 2015
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Real Estate & Construction

The road to maturity: Poland’s real estate and construction market since 1989

by Marcin Klammer, CEO and Peter Maitland, business advisory director Arcadis
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Those who remember the Polish real estate and construction market as communism was ending are aware of just how far it’s come in such a short time.

There was virtually no open market activity, certainly in commercial space, in the early 1990s and very little funding was available to stimulate activity in construction activities.

Polish companies of a certain size tended to occupy their own buildings which were largely unimproved and were a hark-back to the days in which buildings were over-specified and constructed to give the impression of strength rather than provide the facilities which modern businesses needed.  Office buildings provided cellular accommodation but little or no open plan space could be found.  Foreign-owned businesses opening their doors in Poland were generally forced, in Warsaw at least, to take space at outrageous rents, in one of the Intraco buildings.  The alternative was often to operate out of an apartment with a change of lighting and a telephone switchboard being the only indication of a change of use.

The mid 1990s saw the first real signs of foreign investor interest in Poland.  This was early acknowledgement of the potential to come, and stimulated activity by a players who saw the opportunity to provide accommodation for foreign businesses in modern space comparable to that offered in mature markets.

In Warsaw, one of the first commercial developments was Wiśniowy Business Park, a campus-style office scheme between the city centre and Okęcie airport. It was designed by an international architectural company and launched by a British developer.  To ensure that construction standards were at an internationally acceptable level, the developer brought in a UK based general contractor, and employed a British project management company.   The sale of Building A, which was leased to Sony and IBM, to Commercial Union (now Aviva) was the first open market investment transaction on the Polish market.

One of the early commissions on which Arcadis (then EC Harris) was engaged was the fit-out of Building B at Wiśniowy Business Park for ABN Amro.

By this time, Polish contractors were winning business as subcontractors to larger general contractors and providing resources in key trades such as concreting, brickwork, MEP (Mechanical-Electrical-Plumbing) and finishing. Close management, however, was still needed to achieve the standards demanded by users and investors and, importantly, to follow stricter health and safety standards on site.  At this time it was not uncommon to see workers on site wearing soft or open-toed shoes, no safety goggles and frequently no hard hats.  

Mainly British and some international construction consultants also saw opportunities in Poland and opened offices in the early/mid ‘90s; most of them including Arcadis (then EC Harris and AYH Homola) still have a strong presence on the market today.  These companies brought in a disciplined approach to project and cost management of projects as well as a focus on health and safety.  

The international real estate brokers also saw opportunities in Central and Eastern Europe; by the end of the 1990s most of the large agencies around today had established a presence.  The heads of those businesses were mostly British professionals, bringing with them a body of knowledge and expertise into a market that lacked the skills needed in the real estate and construction business as it expanded to take advantage of the drive to rebuild Poland after 45 years of communism.

The Royal Institution of Chartered Surveyors also established a Polish branch in the 1990s.  The big consultancies saw the benefit of their staff having an internationally recognised qualification. As a result, RICS membership has grown from about 10 mainly British chartered surveyors to around 300 members today.

Whilst the office market was the first to benefit from this rush of activity, retail started to test the waters with IKEA’s Janki project creating a totally new offering to the Polish market.  In order to get shoppers to the centre, IKEA laid on a free bus service from the city centre to Janki.  It would be some time before modern city centre shopping developments became commonplace.  Since the launch of the first-generation centres however, Poland now has some of the best shopping-centre facilities in Europe.  Stary Browar in Poznań, a project in which we were proud to be involved, was the first Polish centre to receive (in 2005) recognition from the International Council for Shopping Centres as the “best new medium-sized shopping centre in the world”. 

The logistics (warehousing and light industrial) market was a late developer, depending substantially as it does on a good road network.  This sector has really taken off in the last five to ten years as Poland has constructed, with significant support from the EU, a national motorway network which has shrunk journey times and dramatically improved the efficiency of the logistics industry.  Developers and contractors working in this sector have gained expertise which places them on a par with the best in Europe.  The strength of the economy has allowed activity to continue in the Polish market when much of Europe has seen a muted performance.  

As regards construction, the most notable change in the last 25 years has been the extent to which the sector has consolidated.  Over this period, the construction industry has experienced several episodes of slack activity which squeezed margins and forced many smaller contractors out of the market.  They were often caught out by late or non-payment from the main contractor and did not have deep enough pockets to withstand a long downturn.  General contractors are even today working on margins which are unsustainable but the pressure on smaller Polish contractors in the 1990s to mid 2000s allowed the large European contractors from Scandinavia, Germany and Austria, to take strategic positions in the market and take over or supplant the local businesses.  These large contractor groups were often able to cover deficiencies in their real estate projects by their large infrastructure projects which gave a steady income stream to finance operations.

As Europe struggles to throw off a wide economic inertia, we are seeing threats to economic stability from multiple fronts, the most recent being the unsettling impact of massive migration and challenging security issues.  Both of these also create opportunities for the real estate and construction markets in the countries most affected.  Poland is currently hardly engaged, but given its demographics there may yet be some reconsideration which would create a boost to domestic activity.

 

More in Real Estate & Construction:

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The lease rent and other payments associated with the lease of a commercial office space constitute a significant part of costs incurred by a company. In the case of lease agreements, they also form long-term liabilities. Concluding a lease agreement therefore, although it undoubtedly offers a company many opportunities for development, may also  pose certain risks.  

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