Polish real-estate market overview from Cushman & Wakefield


Upward pressure on rental rates and rising construction costs on the one hand and a growing focus on ESG and repositioning of commercial buildings on the other. Faced with the current pace of change in the market, many investors are looking at 2023 with a degree of uncertainty. Are there any reasons to be fearful? And how will the economic slowdown shape trends and sentiments in each sub-sector in the short term? Global real-estate services firm Cushman & Wakefield answers these questions in the fourth edition of its Trends Radar report.

A wave of cost increases across the market

One of the notable trends seen across all market sectors for quite some time has been the increase in construction costs and service charges in commercial buildings, which has sent rental rates rising. While the situation in the construction market is expected to stabilise in the coming quarters, record-high utility costs are likely to adversely affect tenants’ budgets.

Rent indexation scheduled in lease agreements for early 2023 will push rental rates up by 7-9% in a single move. We also expect that service charges will increase by around 25-60%. The actual growth in service charges will largely depend on the price of electricity contracted by landlords for 2023 and whether landlords applied for the freezing of energy prices for micro, small and medium-sized enterprises,” comments Katarzyna Lipka, head of consulting & research, ESG Lead Poland, Cushman & Wakefield.

With the energy crisis worsening, sustainability strategies will continue to gain in importance.

“Mitigating the environmental impact of properties and green certification should certainly not be reduced to cost cutting only. There is, however, no denying that improving the energy efficiency of buildings and the increasingly popular green leases are likely to boost the bottom line of market players and add value to properties in the long term,” – says Katarzyna Lipka.

Office supply gap

In 2020, amid successive government-mandated lockdowns and the rise of home office, there was widespread talk of a massive shift away from offices, which was expected to result in a substantial surplus of office space. Now, three years after the outbreak of the pandemic, quite a different scenario is likely to materialise.

“The reason is a slowdown in development activity, with 2023’s new supply in Warsaw expected to reach around 60,000m2, accounting for about 20% of the five-year average. Regional city office-markets are also likely to witness lower new supply levels in the coming quarters. Office demand will, however, be highly correlated with the pace of economic growth. That said, 2023 is shaping up to be a year of renewing leases made in the peak years of 2018-2019, which is expected to bolster this year’s demand,” – explains Jan Szulborski, senior consultant, Cushman & Wakefield.

Demand will continue to be driven by the business services sector, which is likely to see its share of total take-up grow even further in the long term.

Retail market responds to consumer sentiments

The negative annual retail sales growth forecasted for 2023 and the record high service charges will be the two key challenges facing the retail market. On the other hand, value retailers such as Action, Dealz, TEDi, Pepco, Sinsay, NKD, and KiK, which favour cheaper locations, i.e. retail parks, will maintain their growth momentum.

“Many retail tenants are just emerging from the Covid-19 crisis and, having learnt the lesson during the pandemic period, they now expect more lease flexibility from landlords. Both short-term leases and leases with turnover-based rents only are becoming increasingly popular. Some new leases will also incorporate clauses with a cap on rental and service-charge growth,” says Ewa Derlatka-Chilewicz, associate director, Cushman & Wakefield.

Protracted decision-making regarding both new locations and lease renewals is likely to push vacancy rates up and result in lower pre-let figures for projects in the pipeline despite more subdued developer activity. 2023 is expected to witness a slowdown in new supply growth as only 280,000m2 out of the planned 600,000 m2 is currently under construction.

In 2022, the retail property market witnessed the highest investment activity in the last few years, with its year-end volumes significantly surpassing the previous year’s result. The long-term outlook remains positive for retail properties which demonstrated their market strength and resilience to e-commerce during both the pandemic and the post-Covid period.

The industrial sector? Growth to stabilise

The industrial market will continue to be driven by e-commerce in the near future, but its rate of growth is expected to plateau. According to Trends Radar data, e-commerce more than doubled (+127%) in the last four years, posting the average annual growth of 23%. E-commerce is broadly expected to grow by 11% per annum over the next five years.

“We expect that the European industrial market will evolve towards nearshoring in the coming years, which will minimise the risk of supply disruptions caused by unforeseeable events. This in turn is likely to benefit Poland as some Western European countries are taking measures to reduce their reliance on Asian markets. In addition, some companies from Poland’s eastern neighbours are investing their capital in our country on account of geographical proximity and much greater safety of doing business here,” explains Vitalii Arkhypenko, consultant, Cushman & Wakefield.

In the long term, this sector is expected to move decisively towards innovations and further improvements such as production automation, shortening supply chains thanks to 3D logistics or improving the energy efficiency of buildings.

Residential market under pressure

The Polish residential market has been hit hard by an outflow of mortgage buyers and a commensurate fall in demand for new flats. Demand for flats from individual buyers is expected to weaken further in the coming months due to high interest rates and decreasing mortgage availability. As a result, developers will be increasingly shifting their focus to PRS projects to meet the record demand for rental flats.

Cushman & Wakefield, however, expects that the residential market will begin to recover after a period of stagnation.

“In addition, Poland’s changing demographics will drive the growth in senior housing formats – not only typical care homes, but assisted living flats in particular. The co-living sector is also expected to be back in the game again following a brief period of stagnation caused the pandemic and travel restrictions,” says Karolina Furmańska, associate director, Cushman & Wakefield.

At the same time, energy efficiency and ESG solutions will begin to play an increasingly important role in the coming years as they will translate into substantial savings for Polish consumers amid the ongoing crisis in the energy market in particular.

Hotels riding high

The number of nights sold by Polish hotels in 2020 fell by 48% but in 2021 was up by 45%. The upward trend was also observed in 2022 and is expected to continue throughout 2023, with hotel occupancy to be driven largely by domestic demand.

The recovery in demand is expected to boost supply growth across the country. This trend is borne out by Cushman & Wakefield’s H2 2021 Operator Beat report, as four Polish cities are among the Top Ten hospitality markets, confirming Poland as the most attractive country within the CEE region for hotel operators.

“Investors are targeting not only the largest Polish cities such as Warsaw and Kraków, but also leisure destinations, which – in turn – is creating a more positive price perception by investors” explains Maciej Prończuk, hospitality consultant, Cushman & Wakefield.

Sustainability matters will gain in importance in decision-making regarding debt finance and the availability of refinancing and restructuring options. Credit and due diligence processes are now integrating ESG-related KPIs, allowing lenders to deploy their resources to more sustainable projects. All in all, it is clear that lenders are favouring ESG-compliant businesses and projects.