We use cookies to make sure our website better meets your expectations.
You can adjust your web browser's settings to stop accepting cookies. For further information, read our cookie policy.
IN Warsaw
Exchange Rates
Warsaw Stock Exchange - Indices
The Warsaw Voice » Real Estate » December 16, 2009
2009 Analysis; What's Ahead
You have to be logged in to use the ReadSpeaker utility and listen to a text. It's free-of-charge. Just log in to the site or register if you are not registered user yet.
Residential Market: Z±bki Better Than Wilanów
December 16, 2009   
Article's tools:

Varsovians tend to buy homes close to schools, day nurseries and stores, with good transport links to the city center. They are prepared to buy a smaller home as long as they have access to a full range of amenities and services, says Mariusz Kania, president of real estate services company Metrohouse, who talked to Magdalena Fabijańczuk.

At what point of the business cycle are we today on the real estate market?
If you mean the place on the curve, we have passed the bottom and are slowly starting to climb. The most desperate developers and private investors have sold the homes they had. Those that haven't and have been having problems for a year, have learned how to cope with the situation pretty well. That's why they have no intention of reducing the prices on either the primary or secondary market.

Does that mean homes won't get any cheaper?
Housing prices have stabilized and shouldn't drop any further, which doesn't mean there aren't any bargains around. On the other hand, there are many projects in preparation today where apartments are to cost, say, zl.4,200 per sq m, in the Białołęka district, for example. We'll see in spring if the developers actually start them. Why so cheap? It's because building material prices and labor costs have dropped significantly in recent months. Developers know they cannot work with such margins as they had a few years ago, plus they purchased their plots at prices from before the boom. When you take all this into account, even if they sell homes at zl.4,200 per sq m, investors can still make a decent profit. That's why anyone thinking about the primary market should wait until spring, but remembering that the construction cycle for a building is 18 months on average.

You mentioned bargains-where do we find them and when can we haggle?
If the price is honestly calculated, the leeway for discounts is just a few percent. We did a survey on this in spring and the average discount turned out to be 4 percent. If you manage to negotiate 30 percent off the apartment price, that only means the price was strongly overestimated from the start.

Bargains come up in exceptional situations, for example in a building where the developer only has two apartments left to sell and both have flaws-for example a large apartment has only three windows. Then, you might pay as little as zl.5,000 per sq m for an apartment in the Saska Kępa neighborhood. It's often the case that leftover apartments are sold at bargain prices. It's not worth it for the developer to maintain a sales office for the project anymore.

Market analysts have been warning for months that any day now there won't be anything to choose from because there was a one-year break in new projects starting up. Do you think it's possible that there will a shortage of homes for sale?
I'm absolutely not worried about the supply of housing. The part of demand that cannot be met by the primary market will be satisfied by the secondary market.

Many people don't even consider the secondary market. Buying a second-hand home, you pay a similar price, and if the apartment was completed in the last few years, you might even pay more than on the primary market. Vendors argue that this is a home you just move into and enjoy, meanwhile what you might get are dingy green walls, unfashionable bathroom tiles, an ugly wood-paneled hallway-you're going to have to tear it all down anyway. Given the rather high prices, what is attractive about homes on the secondary market?
I can answer this question in two words: location and infrastructure. Older buildings usually stand in better locations. You build on the best plots first, and then farther away or to the side. Besides, it's worth remembering that the secondary market has changed a lot over the past few years. In the 1990s the difference in quality between existing buildings and those that developers started building was really big. Today at least half the homes offered on the secondary market are young-the oldest buildings in this group are eight years old. Buying an apartment on the secondary market also carries less risk-you know who lives in the building and how it is managed.

The price argument you gave is also valid. The purchase price for an apartment in many cases is the end of the costs you have to bear. Of course, not every home on the secondary market has to be to your liking. Nevertheless, many homes from the new-secondary range have been finished in neutral colors: beiges, grays, browns. That's why you need to use your imagination when viewing a second-hand home. The color of the walls isn't a problem, and in your imagination you also need to throw out all the furniture, boxes and other stuff. The important fixtures are the ones costly to replace: floors, wall tiles, floor tiles and windows.

Perhaps suburban locations, where more new developments are being built, could be an alternative to Warsaw's primary market. Can they compete with the capital?
They can compete, quite easily. For example, the town of Z±bki is closer to downtown Warsaw than the district of Wilanów. The transport links are also better, because there's a train running from Z±bki to Warszawa Wileńska railway station. And, importantly, the town has complete infrastructure: a health center, day nursery, schools and stores. In Wilanów, on the other hand, there are problems with everything. Z±bki is just an example, all small towns with well developed public transportation are doing well. I'm thinking here mainly of Otwock, Józefów, Sulejówek, Rembertów and Pruszków. The transport situation is worse around Izabelin and Legionowo, which is why not many new projects are being built there.

A growing number of young couples are returning to the idea of buying a home on credit. Do you think banks are ready to start lending them money again?
I believe the loan machine has started moving. New banks just starting operations on the Polish market will still have to vie for clients. A few banks offer loans to cover 100 percent of a home's value, of course when the borrower meets certain criteria. Things are getting back to normal, which doesn't mean we will go back to the situation from two or three years ago on the loan market. Banks want a safety valve, so the borrower's downpayment of at least 20 percent of the investment's value is very desirable. People say the home itself serves as collateral for a loan, but Polish banks don't want to take over and sell homes. It's complicated in legal terms as well as being simply a pain. More often, the bank's representative will say, we'll grant you a loan, but for a smaller amount, find a smaller apartment.

Has the crisis changed people's expectations toward homes-their location, size, number of rooms?
Due to financial constraints, people in Poland are buying smaller homes but in good locations. We don't want to live in the middle of nowhere with a promise that in 10 years' time this will be one of the best places to live. Young Poles are increasingly mobile, when they buy a home they don't plan it to be for their whole life, which is why they don't want to wait for years for day nurseries, schools, roads and stores close to their housing estates. One new trend is the returning demand for apartments in prefabricated buildings-after a rather inauspicious period, these are back in favor and are selling much better than apartments in buildings with a concrete framed structure or made of brick. Prefabricated apartments are cheap but that's not the only reason-they also have good locations. People have been living in them for years, sending their children to day nurseries, then to elementary and junior high school, doing their shopping locally, and so on.


Return to Luxury
Alicja Ko¶ciesza, sales and marketing director for Poland at developer Orco:
Despite the crisis, the luxury real estate market is doing fine. Since the start of the second quarter of this year, Orco has finalized a consistently high number of transactions in which prices range from zl.20,000 to zl.30,000 per square meter. Many of our customers with surplus funds at their disposal are returning to the luxury real estate market in search for safe investments. Apartments in completed projects where the ownership title can be transferred immediately, are especially attractive. Due to the absence of risk and the limited supply of new, prestigious residences, 70 percent of the premium apartments on Mokotowska Street sold in just four months. Customers are finalizing transactions taking advantage of the increased flexibility of developers, an approach that is likely to change as soon as next year.

Market Nearing Equilibrium
Adam Polanowski, president of Polanowscy Nieruchomo¶ci real estate company:
This year has been a time of learning, of humility in the face of the facts and of building up a pool of experience for the future. It was also a time of tough decisions, both institutional (adjustment of project and budget plans, remodeling of functions, team cutbacks) and individual (reduced credit ratings, growing unemployment, adjustment of earlier consumption/investment plans and so on.)

At the start of the year, a buyer's market emerged, as expected, with price reductions of more than 10 percent available, promotions, bonuses, discounts granted as developers attempted to revive the market-though not everything was subject to depreciation, devaluation and price-cutting. In the second quarter of the year the market stabilized. Vendors stopped offering sale prices below the profitability threshold and their flexibility in negotiations diminished. The rather dormant secondary market, relegated to second-class status in 2007-2008, reawakened and began growing stronger. Prices changed. Banks woke up as well and entered the third quarter of 2009 delving into their resources a little more generously and turning up the flow of credit. The market reached an equilibrium, in keeping with the rules of economics.

What happens next year is a great unknown that depends on potential changes influencing the real estate market (the political and economic situation). All the market players are still learning to deal with the new "post-October" reality.

Demand Driven by FMCGs and Drugs
Robert Dobrzycki, Panattoni Europe managing partner for Central and Eastern Europe:

Analyses of new lease contracts signed in 2009 show that demand is being predominantly driven by companies operating in sectors that are less sensitive to fluctuations in business cycles, such as fast moving consumer goods (FMCG) and pharmaceuticals. Consequently, the largest projects in the warehouse sector have been undertaken by pharmaceutical and food companies which, despite the economic slowdown, have been developing rapidly and investing extensively. This also holds true for Panattoni customers.

Panattoni Europe has signed a contract to construct two built-to-suit (BTS) facilities of 35,000 square meters in the Warsaw and Poznań regions for Torfarm SA, a leading distributor of pharmaceuticals in Poland. This is the largest deal in the sector this year. Other customers in the pharmaceutical sector include Farmacol SA, a leading Polish distributor of drugs, for which we are building a dedicated warehouse in Żerniki near Poznań, with over 5,000 sq m of space.

Compared with the past few years, logistic operators, store chains and production companies account for a smaller part of the demand. These companies nevertheless remain among the key players, as shown by our recent deal with PartnerTech, a company that has rented 12,000 sq m of space at Panattoni Park Mysłowice to open a production plant.

Positive Outlook
Ben Bannatyne, ProLogis managing director in Central and Eastern Europe:

Overall we believe the outlook for the warehouse and distribution sector in Poland and indeed all of Central Europe looks positive. Despite the global economic crisis we are starting to see tentative signs of recovery in the more mature markets and we believe this will feed through to Central Europe over the course of the next six to nine months.

Poland is a large country-there is strong internal demand driving retail growth across the country and this in turn drives the need for logistics facilities and warehouse accommodation. In addition, we are once again witnessing demand from Western Europe for light manufacturing due to lower wage costs. This can be a big driver of demand. Also, as the road and rail infrastructure improves, this will lead to an increase in transport efficiency and accelerate the development of supply chains and the consolidation of older facilities into modern logistics hubs. The warehouse market is still immature compared with other countries of a similar size so we see ample opportunity over the coming years to grow our business in Poland.

Yet the focus of developers will be different. I doubt we will witness the same kind of return to speculative development in the medium term as we saw during the last five years. There is still a significant amount of vacant space in the market that needs to be absorbed. We will see more pre-leases and built-to-suit (BTS) opportunities, and indeed there are a number currently being discussed.

Harbingers of Change
Krzysztof Giemza, director of the shopping center department at Echo Investment:
The past year or so has been a time of adjustment and a wait-and-see attitude on the Polish commercial real estate market. Existing shopping centers have weathered this generally difficult time-for the economy as a whole-in a relatively good shape. At most centers, customer numbers and sales levels have remained steady. With no competition from new projects, the centers have managed to retain and in many cases even strengthen their market position. On the other hand, projects under preparation have proved to be much more vulnerable to the slowdown: some were postponed and others were abandoned altogether.

As anticipated, the past year has been a time of falling prices on the real estate market as a whole, especially as the previous boom had brought a number of misguided projects that are doing poorly at this time of crisis, discouraging investors and simply spoiling the market. But, despite the evident downturn, developers have managed to complete a considerable number of projects and are well advanced preparing to build new ones.

The coming months will show which scenario-the dark one or the rosy one-prevails. It all depends on whether market players remain active and if they manage to overcome barriers to development.

The main thing that hampers new projects are problems obtaining funds. But judging by some recent transactions, banks have funds at their disposal and are ready to lend money to strong partners for well-prepared projects. One of the first symptoms of change on the market is that banks are more open these days. A 100-million-euro loan granted by Eurohypo in October for the construction of the Galeria Echo shopping mall in Kielce was one of the most spectacular transactions of this kind in Central and Eastern Europe as a whole.

There are many indications that, after a clearly sluggish period, a good climate for investors is around the corner.

Strongest Benefited
Yann Guen, vice president of developer Mayland Real Estate:
The crisis has verified the business models of numerous companies. Some retail chains have been going bankrupt, developers have been putting their projects on standby, while financial institutions have been trying to avoid risks as much as they can. However, in the end, the market will have to move on and we need to be ready for that moment.

In 2009, the biggest challenge for the retail real estate market was not gaining funding for a project. The biggest challenge was finding the final client of the project. In fact, since September 2008 no transaction has taken place on this market.

A developer launching a project now cannot say to whom and for how much he is going to sell the shopping center when it is ready.

The Polish retail real estate market has not experienced a sudden fall in consumer consumption but only a modification. Tenants' turnovers have either stabilized at a certain level or have been slightly increasing. All the problems that dog some retail chains stem from incorrect business structure, mismatched development strategies and high indebtedness. To be able to develop, tenants need to re-think decisions taken at a time of market euphoria. The crisis has verified the quality of business strategies and the strongest have benefited. Neither have the owners of retail facilities incurred major losses. They are still receiving the amounts due for space leased. Naturally, some rents have been renegotiated. These were, however, no revolutionary changes. Well-managed facilities generate turnovers guaranteeing their financial liquidity. As a developer, I dare say that in our business the area that has suffered the most is evaluation of investment risk.

Every factor taken into account when an investment decision is to be made has changed. The recent crisis has revolutionized the approach towards retail real estate development. Every developer gets indebted in order to construct his facilities. If he loses the sources of financing, he is no longer able to proceed.

We observe how the situation is developing on the markets in Poland and in Central Europe. It is true that the impact of the crisis in other countries of the region was immense. Mainly because their markets were considerably less mature than the Polish one. Luckily, the main field of our activity is Poland, while Bulgaria and Romania is where we see our opportunities for the future.

BPO as an Opportunity for Office Buildings
Krzysztof Witkowski, president of the managing board of Virako Sp. z o.o.
One could say that this year has been one of reflection for the entire real estate sector. It has definitely been a good time to take a closer look at your company and revise plans for the coming years. The crisis that surrounds us may turn out to be a test that will eliminate the weakest companies from the market and the only survivors will be those that plan their future rationally. The first signs of the economic downturn affected all cities without exceptions, including regional cities that were forced to slow down radically before they even got to spread their wings (construction of over 100,000 square meters was put on hold, according to Jones Lang LaSalle).

Today, however, the crisis can be seen as an opportunity for the least developed cities such as ŁódĽ, Katowice and the Tricity area. These metropolitan areas guarantee access to well-educated and inexpensive human resources, which is a great advantage to many companies that are forced to seek savings. We can see that companies in the BPO (Business Process Outsourcing) sector are again interested in these cities.

One question is whether cities that have already entered the fast lane of economic development, such as Cracow and Wrocław, can make it in the present situation. Can the difficulties in access to human resources, resulting from increased competitiveness of BPO businesses, hinder the further development of those cities? Or is the reverse true-will a guarantee of employees with the right experience, but more expensive ones, attract more enterprises? In my opinion, the economic situation will prompt many companies to go for the cheaper option, which will benefit cities such as ŁódĽ, especially when more basic services are concerned.

ŁódĽ has taken a leap forward compared to previous years and alongside a superb academic center with almost 140,000 students, it now provides a decent amount of modern office space available at, relatively, very low rental rates. The present vacancy rate on the entire ŁódĽ market stands at 20-30 percent (according to a Jones Lang LaSalle report), or slightly over 20,000 sq m, but this figure does not really mean much. The situation can change very fast. All it takes are several companies from the BPO sector which in the latter half of this year are becoming active again. Banking on the development of outsourcing in ŁódĽ, we have built the Forum 76 office building and are planning more projects in the city.

Better Times Ahead for Landlords
Jarosław Zagórski, commercial and business development director for Ghelamco Poland:
The economic slowdown has not hit the Polish real estate market as badly as that in many other countries. The Polish office real estate market is still recognized as one of the most attractive in Europe, and Poland continues to be the country with the best economic outlook in the region. It is the only EU member state with positive economic growth, with GDP expected to grow 1 percent this year.

The year was a time of sluggish business for many, including developers. As a result of the crisis and consequent restrictive credit policies adopted by banks, a large number of planned projects failed to make it to the construction phase or were postponed to a much later date. Only the strongest and most reliable investors, who were able to cope with the tough economic conditions, continued to operate on the market.

Reductions in rents, together with a substantial supply of office space, led to a tenant's market. Rates in Warsaw office buildings can now be negotiated down to 20-21 euros/sq m in the city center and 15-16 euros/sq m outside the center.

But this situation is not going to last. From mid-2010, the supply of office space is expected to drop, which in turn might push up rents. As a result, landlords will be in a stronger position.

The first signs of the recovery expected over the next two to three years can already be seen. Following the clear slowdown at the end of 2008 and beginning of 2009, tenant activity has decidedly picked up since the middle of the first quarter.

In Warsaw alone, transactions for over 45,000 sq m were concluded in the first quarter. The figure for the second quarter was 62,000 sq m and nearly 75,000 sq m for the third quarter.
© The Warsaw Voice 2010-2018
E-mail Marketing Powered by SARE