Warsaw commercial real estate market remains promising
Summary:According to experts at CBRE, the leading global property adviser, in the first three quarters of 2012 total investment volume in the Polish commercial property sector stood at over € 1.5 billion. Based on the number of ongoing transactions, the total volume at the end of 2012 should ultimately reach €2 billion. Prime office buildings are still the most popular assets attracting core investors. Ten office transactions generated 30% of the total investment volume, while in Q3 the most significant office purchases included Twarda Tower in Warsaw by Europa Capital and a portfolio of two office buildings by Kulczyk Silverstein Properties. Industrial volume has also increased significantly. With limited availability of prime assets, more opportunistic investors are expected to enter the market generating demand for secondary assets. Prime yields remain stable at 6.00% for retail, 6.25% for office and 7.50% for logistic assets.
Strong demand for offices outside Warsaw’s Central Business District
Office stock in Warsaw increased by 56,000 sqm in Q3 2012 and reached over 3.7 million sqm. Most recent deliveries included Senator and two phases of Wilanow Office Park. With a further 680,000 sqm of office space under construction, this makes it one of the largest pipelines in Europe. Average vacancy rates are up to 8.1% in the last quarter, with non-central locations registering 7.8%. In 2013 the vacancy rate could exceed 10%, potentially significantly impacting average rental rates in the most competitive locations. Prime headline rents have remained stable – top assets in Warsaw Central Business District are commanding €25–27/sqm/month, while non-central locations offer office space for €14–16/sqm/month, with effective rates as much as 30% lower. Total take-up in the last quarter reached 157,700 sqm. The largest leases in Q3 included Assecco’s new headquarters in Wilanow Office Park (20,400 sqm) and a pre-lease of 12,400 sqm by Poczta Polska in a newly planned building at 37c Domaniewska St.
Daniel Bienias, Director of the Office Agency at CBRE, said: "Although the Warsaw office market has been performing relatively well, a major demand driver is the quest for cost reductions. Companies are seeking to consolidate and looking for new, more flexible headquarters at lower rent. As a result, non-central locations are attracting more tenants and the fringe of the city centre has gained popularity due also to a more diversified offer."
Supply shortage driving up retail rents
The Warsaw retail market remains one of the least saturated amongst Polish agglomerations, with 1.33 million sqm of modern space. The low vacancy rate of 1.6% of total stock of units, available mainly in the oldest and poorly performing centres, indicates that demand is outstripping supply. In 2012, supply of new space is extremely scarce with only two new projects located in Warsaw’s suburbs. The first one – Galeria Brwinowska (10,000 sqm of GLA) was delivered in Q1 in Brwinow, the second one will be the first phase of Auchan Gallery in Lomianki (33,600 sqm of GLA in total) to be opened by the end of the year. In 2013, two further schemes will be delivered in Warsaw: Galeria Miejska Plac Unii, with 15,300 sqm of retail GLA and Factory Annopol, a new outlet centre in Bialoleka district. Lack of available retail space is increasing upward pressure on rents in the best schemes and locations, making Warsaw the most expensive retail location in Poland, with prime rents at about €90/sqm/month (for the best units of approximately 100 sqm in a prime shopping centre) and average rents at €30–45/sqm/month. High street rents for the best units average €70-90/sqm/month.
Karina Kreja, Associate Director at CBRE’s Consultancy & Research Team, said: "Although shopping centre development in Warsaw has become more difficult as a good variety of formats can be found in the city, there are still niches to be filled. These are mostly new locations such as Wilanow, Bielany or Bialoleka where large schemes are planned, although none of them have yet been started. The smaller developers are taking advantage of the development slowdown and are investing in a number of convenience strip malls, shops and supermarkets in newly established residential neighborhoods, including such operators and developers as Czerwona Torebka, Marcpol, Lidl or Biedronka. The Warsaw high street sector is also clearly benefiting from the lack of retail space in shopping centres. The area between Swietokrzyska Street and Zbawiciela Square is establishing itself as Warsaw’s prime retail zone extending along Royal Route and Marszalkowska Street."
Vacancy rates down in Warsaw logistic sector
The Warsaw warehouse market has performed well in 2012, although its development is much slower than in other Polish hubs. There were no completions in either of the two warehouse districts in Q3: Sector I (Warsaw city within city boundaries) nor Sector II (Warsaw region), which together already offer over 2.7 million sqm of modern warehouse space. There is currently 50,000 sqm under construction in Warsaw which constitutes 19% of the space under development across the country. Total leasing activity in Warsaw amounted to 380,000 sqm, accounting for 30% of the total demand in Poland. The largest new agreements were signed by Rohlig SUUS in Prologis Park Janki and by Tradis in Prologis Park Blonie II. Vacancy rates have decreased to 17%, but there is still around 450,000 sqm of vacant space to be absorbed. The headline rents in projects located in Sector I are between €4.50 and 5.00/sqm/month, while rents in Sector II range from €2.60 to 4.00/sqm/month with significant discrepancy between headline and effective warehouse rents.