2020 has been dominated on the commercial real estate market in Poland by the pandemic, whose impact varied from sector to sector though. The pandemic has, however, given rise to or accelerated a number of developments, some of which are likely to stay with us for longer. Real estate advisory firm Savills explores future trends in its preliminary summary of 2020 and its outlook for the next 12 months.
Although the long-predicted slowdown did finally arrive in 2020, it was not triggered by economic developments, which was a great surprise to everyone. It also affected the real estate market. While it meant a slight slackening in development activity in some sectors, other industries such as hospitality and retail were forced to close down entirely for some time. Savills estimates that due to the pandemic this year’s total commercial property investment volume in Poland is likely to reach approximately EUR 5.5 billion, which will represent a 30% decrease year-on-year.
The industrial sector displayed relatively the strongest resilience to the negative economic consequences of the pandemic as it benefited, among other things, from the growth in online shopping. According to preliminary data, industrial completions totalled approximately 2.2 million sq m in 2020, bringing Poland’s total stock to close to 20.8 million sq m, says Savills. Leasing activity reached a new high after the first three quarters with 3.7 million sq m transacted, while the industrial investment volume surpassed last year’s all-time high in September (EUR 1.8 billion). Looking ahead, the Polish industrial market will be driven, among other things, by the nearshoring trend and last mile logistics.
“Warehouses have certainly outperformed this year. They constitute an extremely sought-after asset class as they saw an over 200% increase in investment activity in the first three quarters of 2020 compared to the same period last year and accounted for close to a half of the total commercial property investment volume in Poland in that period,” says Tomasz Buras, CEO, Savills Poland.
2020 was also a year of remote working. Office occupancy levels fluctuated over the year, occasionally falling below 20%. According to Savills, many employees and employers also quickly recognised the benefits and limitations of an exclusive WFH model. As a result, to guarantee office safety, some companies introduced staggered work shifts and adapted their spaces to the requirements of social distancing, while landlords began to roll out stricter hygiene protocols in their properties.
Another notable trend that gained immense traction on the real estate market in 2020 was subletting. Savills estimates Warsaw’s office sublease inventory at more than 100,000 sq m. As well as being an opportunity for tenants to generate savings, subletting is also a chance for companies to relocate to a prestigious address and sometimes to secure a fully-furnished office on attractive conditions and on a shorter lease.
The Covid-19 pandemic has fallen outside the scope of traditional property leases. Against this backdrop in 2020, landlords, tenants and banks alike were forced to sit down at the negotiation table to hammer out new arrangements. Negotiations resulted in such measures as short-term lease extensions or rent deferrals or suspensions. Negotiations were particularly hard in the retail sector and highlighted the importance of good cooperation between landlords and tenants, which should be the regular focus of property managers. Lessons learned from the pandemic period also impacted on new leases that began to include provisions on Covid-19 and occurrence of similar events in the future.
“The onset of the pandemic forced the real estate market to respond immediately and adapt to unprecedented challenges. The time is now slowly coming to look at things from a distance and identify trends that will stay with us for longer. The real estate market will change for sure. We should not, however, be wary of such changes as evolution is positive and beneficial in the long term. In my opinion, the market’s fundamentals are strong and changes will create new opportunities. 2021 is shaping up to be a transitional year that will continue to see the negative consequences of Covid-19. Having said that, I do believe that vaccine effects will soon become visible on the real estate market and as restrictions are eased and the pandemic is brought under control, optimism will return, followed by capital,” says Tomasz Buras, CEO, Savills Poland.
According to Savills outlook for 2021, despite a Covid-19 vaccine appearing on the horizon, remote working will stay with us for some time to come and many companies will probably choose to retain it to some extent by implementing a hybrid work model. This will have an effect on both working patterns and leasing strategies. Offices will be increasingly featuring hot-desking systems, with fewer dedicated desks and a stronger focus on creating an environment that nurtures creativity of teams. As regards lease agreements, there will be fewer expansions as flexible coworking spaces could meet such requirements.
According to Savills, the Polish public sector is expected to continue to play a growing role on the office leasing market in 2021. In January-September 2020, state-owned companies accounted in Warsaw for nearly a quarter of the total office transaction volume (105,000 sq m). It was also a state-owned company that completed during the pandemic the largest transaction in the history of the Polish office market – PZU will relocate to a 47,000 sq m office in Generation Park. Savills expects this occupational market trend to carry into 2021, with buildings leased to the public sector being increasingly traded on the investment market.
Alternative asset classes will continue to grow in popularity in 2021 and will be increasingly viewed on a par with traditional mainstream real estate sectors. This growth will be particularly strong in the private rented sector (PRS). Purpose-built student accommodation is also expected to attract investor interest as it saw a relatively limited decline in occupancy rates despite the transition to remote learning. Senior housing is experiencing the slowest growth for the time being, but its dynamics will be driven in the long term by the growing affluence and ageing of the Polish population. Globally, data centres and solar farms are becoming a new alternative.
The final trend that Savills anticipates is towards Environmental, Social and Corporate Governance (ESG). Climate change, as well as cultural, generational and technological changes have an indirect impact on the real estate market, among other things, through how people work and shop. Looking ahead, this impact will grow over time and extend to property leasing or acquisition. According to Savills, ESG is becoming an increasingly important assessment criterion in the decision-making process for investment funds and multinationals and its importance will grow not only in 2021, but also in the years ahead.