Savills presents its preliminary summary of Poland’s commercial property market performance in 2018 and an outlook for the next twelve months

Adding date: 31.12.2018 | Poland

A growing investor appetite for industrial assets, a supply gap on the Warsaw office market and Poland moving up global ratings - these are some of the real estate market highlights of 2018. All the indications are that in the months ahead the market’s focus will be on alternative asset classes and the likelihood of an economic slowdown. Real estate advisory firm Savills presents its preliminary summary of Poland’s commercial property market performance in 2018 and an outlook for the next twelve months.

According to Savills, in addition to further rapid supply growth and a record-high occupier demand for warehouse and industrial space, this sector also figured strongly on investors’ radars in 2018. The situation on the Warsaw office market was somewhat skewed by the number of new projects underway in the belt between ONZ and Daszyńskiego roundabouts. Those buildings, however, will not come onto the market before 2020, hence the current supply gap in the city. Other highlights of 2018 included the Sunday trading ban that took effect earlier in the year and Poland’s upgrade to developed market status on the FTSE Russell index. Poland is the first country in almost a decade to have made it, which could potentially bring an upswing in interest from investment funds targeting exclusively the most mature markets.

2019 is shaping up to be a year of alternative asset classes. Poland is seeing a gradual increase in supply of purpose-built student accommodation, private rented housing and senior homes which are increasingly becoming sought-after investment products. The next two years will also be a moment of truth for serviced offices and co-working spaces that have already taken hold in Poland and started to transform slowly the office leasing market. With further technological advancements underway, smart property solutions will become the norm. And yet, the human being will remain the key focus with community managers increasingly taking care of office building users.

“This year’s transaction volume is likely to hit an all-time high driven by robust investment activity on the commercial real estate market. Polish properties are rising up investors’ agenda, which in 2018 pushed office yields down to below 5%, the lowest on record. Despite a positive outlook for the next twelve months and a desire of investors to avoid the effect of a self-fulfilling prophecy, next year will probably see the first signs of increased investor caution. This will lead to a focus on portfolio diversification and investors increasingly targeting industrial and alternative assets,” says Tomasz Buras, Managing Director, Savills Poland.

Real estate advisory firm Savills estimates that this year’s investment volume is likely to hit nearly EUR 6.5 billion, which would be an all-time high of the Polish commercial real estate market. According to Savills preliminary data, approximately 750,000 sq m of office space was delivered to the market in 2018, bringing Poland’s office stock to 10.4 million sq m. Poland’s retail stock now stands at almost 12 million sq m following the completion of approximately 350,000 sq m of retail space in 2018. The warehouse sector continued its strong momentum with more than 2 million sq m completed in the past twelve months, bringing the country’s total stock to 15.5 million sq m.

2018 key market trends:

  • Supply gap on the Warsaw office market

In Q2 2018, Poland’s total office stock surpassed the 10 million sq m mark. In Warsaw alone, there are many new office projects in the pipeline in the belt between ONZ and Daszyńskiego roundabouts. Those buildings, however, won’t come onto the market before 2020, hence the current supply gap in the city. Tenants seeking office units of more than 3,000 sq m at new projects have little choice now and have to focus on existing buildings for renegotiations or relocations.

  • Industrial properties rising up investors’ agenda

Poland has witnessed steady growth in volume of transacted industrial properties for several years. As at the end of June 2018, the transaction volume hit EUR 337.8 million, which was the best result ever recorded by this sector in Poland in the first six months of the year. The Polish industrial market also saw first acquisitions by Asian capital, as well as investment funds such as South African Redefine (previously active in other sectors), which in July 2018 acquired its first nine assets from Panattoni for approximately EUR 200 million.

  • Office yield compression

Office yields, particularly prime yields, have been moving in in the past few months but investors may still benefit from a yield premium over major markets of Western Europe.

  • Rating agencies upgrade Poland’s ratings

Poland is the first country in almost a decade to have been awarded an upgrade to developed market status on the FTSE Russell index. Following the upgrade in September 2018, Poland joined the group of 25 most developed economies of the world including the US, the UK, France and Germany. In October 2018, S&P restored Poland’s long-term foreign currency credit rating to A-. Thanks to these developments, Poland is likely to attract new investment platforms focused on the most mature markets.

  • Sunday trading restrictions

The introduction of Sunday trading restrictions was undoubtedly the retail market’s top highlight in 2018. The new regulations drove some shopping centres to extend opening hours on Fridays and Saturdays. Their effect on the market is not, however, unequivocal as in the first months following their introduction some retail schemes recorded lower footfall levels and higher sales. For some traditional retailers it was yet another argument for developing e-commerce platforms.

Trends anticipated in 2019:

  • Private rented housing, purpose-built student accommodation and senior housing

Investors will become increasingly aware of benefits resulting from alternative asset investments. Poland will witness a gradual increase in supply of such assets, driven by the rising number of international students, the ageing population and demand for private rented housing coming from global corporations.

  • A lesson learnt from 2008

Despite a desire of investors to avoid the effect of a self-fulfilling prophecy, the market will probably see the first signs of increased investor caution and risk reduction through investment portfolio diversification and ever closer monitoring of the global economy.

  • WasS: workspace as a service

The next two years will be a moment of truth in Poland for the concept of workspace as a service due to the opening of large co-working spaces and serviced offices. We will probably see operators consolidate on the market or rents for such space fall. Flexible workspaces have taken hold on the Polish market with more firms likely to opt for hybrid transactions in 2019, leasing both traditional and flexible office space.

PropTech

Smart property solutions will become the norm, particularly in the office sector. Looking ahead, we are likely to see significant growth in warehouse automation and deployment of advanced technologies in logistics. In the retail sector, tools combining offline and online channels (omnichannel) will gain significant importance.

  • Community management

The market will see a stronger focus on marketing campaigns targeting people, their needs and interactions with other humans. Real estate owners, serviced office and co-working space providers will be increasingly hiring community managers with responsibility for bringing together office space users, for instance, by organising a variety of events.

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