Warsaw shows a record number of development projects in the pipeline and under construction. Modern retail developments are underway in Poland’s smaller cities, with the country’s total retail stock now exceeding 10 million sq m. Strong demand for warehouse space helped increase the sector’s share in total investment volume.
The „Marketbeat Poland – Autumn 2014” presents a summary analysis of the Polish office, retail and warehouse markets in H1 2014, with forecasts for the near future.
KEY FINDINGS OF THE REPORT:
Commercial investment market:
- Polish commercial investment market volume in H1 2014 reached EUR 1.4bn
- The largest deal was the sale of Rondo 1 office building for around EUR 300m
- Investors will turn their focus to regional cities in the search for office buildings and to cities with a population of 100,000 to 400,000 offering modern and successful retail developments
- Rising supply in Warsaw will increase competition for tenants within the next few quarters
- Levels of pre-lets continue to fall
- Stable development of regional markets and a large number of projects under construction and in the pipeline
- The first half of the year saw a number of openings of galleries in smaller-sized cities, with the country’s total retail stock exceeding 10 million sq m
- Expansion of convenience store chains across Poland (e.g. Carrefour Express and Odido)
- Warsaw with one of the lowest provision of shopping centre space per 1,000 inhabitants awaits the construction of new large scale shopping centres
- The volume of space delivered onto the market in H1 2014 was close to the total supply recorded in 2013
- Take-up rose in H1 2014 by 20% compared with H1 2013
- The vacancy rate fell significantly
KEY REPORT FIGURES:
- 330,000 sq m – expected total office supply in Warsaw in 2014, the highest since 2000
- 77% – a rise in investment activity in the warehouse sector in H1 2014, comparing to H1 2013
- 75,000 sq m – the size of the biggest retail scheme completed in the first half of the year (Atrium Felicity in Lublin)
“The revival in the commercial property market in Poland is apparent. This bounce in the sector mirrors the marked improvement in the overall economy seen last year. Strong development activity and stable occupier demand helped attract foreign investors’ interest. The country is perceived not only as leader in Central Europe but also as an attractive investment alternative to more developed western European economies” – says Charles Taylor, Managing Partner of the Polish office of property consultant Cushman & Wakefield.
Polish commercial investment market volume in H1 2014 reached EUR 1.4bn, a rise of more than 27% on the same period of the previous year. As in previous years, investors from Germany, the US and the UK were the main driver of this growth with their share in the transaction volume of around 85%. Polish investors accounted for around 5% of all deals, roughly the same as in 2013.
The office sector accounted for 51.5% of the total transaction volume (EUR 719m). The largest deal was DeAWM’s acquisition of Rondo 1 in the Warsaw city’s core for around EUR 300m. Retail sector accounted for 26.5% and performed less strongly than in 2013 with the transaction volume of around EUR 370m. The Poznań City Center shopping centre acquired by a consortium of Resolution Property and ECE accounted for nearly two-thirds of that total. Investment activity surged in the warehouse sector with EUR 307.6m of deals in H1 2014 (22% of total investment volume). The largest transaction was the sale of the portfolio of seven logistics facilities by Standard Life Investments Select Property Fund to Logicor, a fund managed by Blackstone.
“Demand for prime assets remains strong. Although the availability of those properties has been limited, the situation is now improving, in particular, in the office sector, both in Warsaw, which witnesses a large number of new development projects, and in regional cities. High quality, income producing assets with long-term secure leases are the most sought-after products. On the retail market investors are likely to turn their focus in the forthcoming months to cities with a population of 100,000 to 400,000 offering a number of modern and successful retail properties. Following the positive sentiments on the investment market, the transaction volume is expected to hit more than EUR 3bn by the end of 2014” – says Piotr Kaszyński, Partner, Head of Capital Markets of Cushman & Wakefield.
Warsaw’s modern office space stock rose to more than 4.3 million sq m at the end of June 2014 (434 buildings) ahead of Istanbul, Dublin and Prague. In H1 2014, more than 190,000 sq m of modern office space was delivered onto the Warsaw market in 17 schemes, nearly 40,000 sq m more than in H1 2013. The largest completions were HB Reavis’ Gdański Business Center (44,500 sq m) and phase one of Capital Park’s Eurocentrum Office Complex (38,700 sq m). Leasing activity at the end of Q2 2014 totalled 259,000 sq m. The largest transaction was Netia’s lease renewal of 13,200 sq m in Marynarska Business Park. Absorption rate has also increased. The rising office supply pushed the vacancy rate in Warsaw up to more than 13% at the end of Q2 2014. Prime headline rents remained flat in H1 2014 and did not exceed EUR 25/sq m/month in Warsaw’s Core.
Total modern office stock in the six main cities, apart from Warsaw, at the end of the second quarter this year stood at 2.6 million sq m. Krakow accounted for the largest share in the first half of the year (60,000 sq m). It also enjoyed the lowest vacancy rate (less than 3.6%). The largest completion in regional cities was Green Day in Wrocław (15,300 sq m, Skanska). The largest office lease transactions in H1 2014 in regional cities was HSBC in Kapelanka 42 in Krakow (10,500 sq m). Headline rents in regional cities ranged from EUR 13/sq m/month in Łódź to EUR 15/sq m/month in Krakow.
“The developers market in Warsaw is steadily consolidating with an increasingly dominant position of large specialized market players. Expected total office supply in Warsaw in 2014 may exceed 330,000 sq m, the highest since 2000. Looking at the development and occupier market it must be noted that the significant number of office projects in the pipeline in the capital, with falling levels of pre-lets will increase competition for tenants in the next few quarters. The main growth drivers are the stable economic situation and improvements in the infrastructure, including the planned opening of the second metro line. The noted low vacancy level in regional cities, in particular in Krakow and Katowice, is a positive sign for the schemes’ owners and developers. Tenants seeking large space in cities outside Warsaw will be able to choose from a relatively large number of new projects, currently in the pipeline or under construction” – says Richard Aboo, Partner, Head of Office department of Cushman & Wakefield.
New retail space supply in H1 2014 totalled 245,000 sq m, up by more than 20% on the figure recorded in the same period of 2013, bringing Poland’s total stock to more than 10 million sq m. By the end of June 2014, eleven new retail schemes were opened and two extensions were completed. The first half of this year saw a flurry of new shopping centre openings in secondary markets in contrast to 2013. The biggest retail scheme completed in the first half of the year was Atrium Felicity in Lublin (75,000 sq m), which opened in March, being also the largest shopping centre scheduled for 2