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The Warsaw Voice » Real Estate » January 27, 2011
Luxury Apartment Market in Poland
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Luxury Has Its Price
January 27, 2011   
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The global financial crisis slowed the growth of the Polish luxury apartment market, and some planned projects stalled. But last year business started rolling again: work was resumed at construction sites, and new projects emerged.

The luxury apartment market in Poland began to develop in the late 1990s. Rising demand for such apartments was a reflection of Polish society’s increasing wealth, and the influx of foreign investment was also a major factor. Polish investors started to buy luxury apartments in order to rent them to the staff of foreign companies. Developers were eager to launch better, more prestigious projects not only to reach more affluent clients, but also to improve their own corporate image.

Initially, luxury residential projects were launched only in Warsaw, but soon were followed by other major Polish cities—Cracow, Wrocław and Gdynia—as well as renowned holiday resorts such as Sopot, Jurata, Międzyzdroje and Zakopane. Luxury apartments in tourist destinations are an investment and provide a place for spending one’s holidays in conditions matching one’s needs. After returning from holidays, the flats can be rented out.

Not all properties developed a decade ago and termed “luxury apartments” deserved the name. Sometimes they were simply larger than average and with better finishing. Today Polish clients are more demanding and aware of what they should expect for their money. Although there is still no official definition of a luxury apartment, several features are generally considered typical, primarily location, quality finishing and architectural design. When buying an apartment, customers first of all seek a good location most often in the downtown area, close to a historical district or in a new, fashionable quarter. Original architecture is also appreciated, as is a renowned architect behind the project, fashionable design reflecting the latest trends, and top-quality materials.

Analysts from Infinite Investment say that luxury apartments have air-conditioning and modern technological equipment. A luxury apartment should be no smaller than 70 sq m, but this minimum often varies depending on the market. Such apartments should be more than 2.8 m high.

Luxury apartments are usually found in small buildings that are several stories high, with just a few apartments on each floor. High-rises in city centers are an exception. Such apartments usually feature open space, enabling an easy division of the floor area into a night zone, accessible to residents only, and a day zone intended for guests.

Buildings containing luxury apartments usually have a reception desk and lobby for guests and an underground garage for residents. Facades and shared areas are finished with high-standard materials (natural stone, wood, brass). The buildings include such conveniences as a spa center, a fitness club and a swimming pool. A concierge arranges for additional services for residents such as shopping and cleaning. Round-the-clock security and a monitoring system are standard. The largest apartments usually have terraces or gardens.

Overcoming the crisis
Experts say that genuine luxury apartments make up only a small part of the apartments available on the market. “Apartments that can be described as luxury constituted 2.5 percent of all transactions we made last year,” says Marcin Jańczuk from Metrohouse & Partnerzy real estate agency. This might seem unimpressive in comparison with countries like Britain, France or Germany, but the Polish luxury apartment market is still young and developing.

Meanwhile, the prices remain high, both in Poland and elsewhere. Luxury has its price.

Warsaw leads the luxury apartment market. Its prices vary considerably, from zl.11,000-12,000 per sq m to zl.40,000. In the Gdańsk-Sopot-Gdynia Tricity area and Wrocław, luxury apartments cost zl.10,000 per sq m, and in Cracow, zl.13,000. Yet, apartments costing zl.25,000-30,000 can also be found in these cities. Meanwhile, in Poznań and Łódź, relatively slow supply and demand puts the price of luxury apartments under zl.10,000 per sq m.

The crisis that started in the late 2008 reduced demand for luxury residential space and affected the prices only slightly. Market analysts say prices dropped by a few to under 20 percent, unlike in the popular apartment segment. This probably resulted from lower supply. Some developers abandoned planned projects, while other projects were put on hold. Yet another reason was the fact that clients buying luxury apartments often paid a large share of the price from their own pocket and so they were less dependent on the banks’ tighter credit policies during this period. However, the banks’ restrictive approach toward lending to developers was a real problem.

“The luxury apartment building market turned out to be immune to the crisis,” says Alicja Kościesza, sales and marketing director for Poland at Orco Poland Sp. z o.o. “Demand for exceptional luxury apartments has remained stable. We sold apartments in our building on 59 Mokotowska St. over the most difficult period, right after the collapse in 2008 and yet, we sold most of the apartments at zl.20,000-30,000 per sq m.”

Living in a glass tower
Luxury apartments are often located in a renovated historical tenement building, in a terraced house, in a former factory, or in a skyscraper. Construction has begun over the past decade on several record-high buildings around the world. Residential space will constitute a large part of them, with prices as high as the buildings. The trend for residential towers has also reached Poland, with several projects launched. However, the crisis interfered with developers’ plans. Many projects planned during the period of economic growth were abandoned, some have been put on hold, and some were redesigned in order to match current market needs.

Out of several residential towers planned in the largest Polish cities, only one has been completed so far. The 36-floor Sea Towers in Gdynia was finished more than two years ago and the developer, Invest Comfort, managed to sell the apartments before the market collapsed. Sea Towers includes two skyscrapers with a shared base. The complex is 141.6 m tall. The buildings include residential space on the upper floors and an office and services zone, with 265 apartments. An average apartment in Sea Towers costs zl.1 million, with penthouses reaching zl.4 million.

The Sky Tower in Wrocław will be much taller. Initially, it was to have 51 floors and 203 m, but after the complex was redesigned, with more rounded shapes, its height increased to 258 m including the spire.

Construction started in April 2008 but in November the investor, Leszek Czarnecki, put the project on hold. Work was resumed on October 2009. It will be 207 m tall, making it the highest residential tower in Poland. But inside, there will be fewer apartments than the initially planned 900 and more office space. Apartments are priced between zl.10,000-41,000 per sq m. The project is scheduled for completion in late 2012.

After a nearly two-year break, construction was resumed on the most luxurious building in Warsaw, Złota 44. The skyscraper, developed by Orco Property Group, is to be completed in 2012. Located in the heart of Warsaw, it will be 192 m tall and will have 54 floors. It was designed by a renowned American architect of Polish origin, Daniel Libeskind.

The building, dubbed “the glass sail,” will house the most luxurious—and highest—apartments in Warsaw. There will be 251 apartments of various sizes. The lower floors will hold services accessible to the public. This will be the first top-standard luxury residential building in Warsaw, with a swimming pool, a sauna, a spa center, a sun terrace, a fitness club with a yoga room, concierge services, and space for holding receptions, with internal catering services.

Jean Francois Ott, the founder and president of board of Orco Property Group, said that by the end of last year, 88 of the building’s 251 apartments were sold. In his opinion, considering the difficulties in the market, this is a very good result. “I also expect that the price of apartments in the skyscraper will grow as this is a unique project for Poland, in an exceptional location,” he said. “Interest in investing in such apartments is rising worldwide. According to my estimations, this is the best bargain in the tallest skyscraper segment in the world.”

Several other high-rise buildings with apartments are under construction in Warsaw. Twarda Tower, developed by Hines, will be 160 m tall. Located in the very heart of Warsaw on Twarda Street, it will hold a hotel on the lower floors and apartments on the upper floors.

In the Muranów district, a 17-floor glass tower will be built as part of the Apartamenty Murano complex developed by Budimex Nieruchomości. The building will have winter gardens and its design reflects the Bauhaus style.

High-rise buildings represent only a fraction of the luxury housing market in Warsaw. The most luxurious projects include the next stage of the Opera complex next to the historical Saski Garden, developed by Dom Development. The same developer has built a large apartment building nearby, Grzybowska 4, that is gradually filling up with residents. “We have sold over 50 percent of the project,” said Jarosław Szanajca, president of Dom Development. “We expect that we will sell eight-nine apartments a month in this project.”

Another interesting project in Warsaw, Rezydencja Piękna Nova developed by Magnus group, is located near the Royal Route. Its design combines the pre-World War II features of Warsaw tenement houses with modern style. The apartments will feature the latest technology, including a room comfort control system, a central security system and a central LCD control panel.

Other luxury apartment projects in Warsaw worth noting include Apartamenty Trio developed by Grupa Eco, Restaura Górskiego by Restaura, Nowe Powiśle by Menolly, Puławska 111 by ECC Real Estate, Belgravia Residence by Belgravia Polska, Rezydencja Foksal by BBI Development, and Klimt House by Echo Investment.

Optimistic forecasts
Experts expect that in 2011 the market will stabilize and demand for luxury apartments will grow. Developers will strive to slowly increase the prices. “We expect that developers will carefully raise the price of a square meter,” reads the report titled Strategies of Developer Companies in 2011 by CEE Property Group. “In our opinion, there are two basic reasons. First, the growth of the cost of labor (construction services) and materials by 10-15 percent, observed for several months. It results from the higher demand on the market, due to the opening up of the German and Austrian markets for Polish companies. Second, developers [will] increase prices as the projects advance and investment risk falls.”

The report says that developers’ profit margins will depend on the segment in which they operate. The highest—in the range of 50-70 percent—can be expected with the sale of the most profitable luxury apartment projects in exclusive locations. Companies building luxury apartments and holiday homes are expected to obtain margins of 30 percent.

Andrzej Ratajczyk


Commentary
Alicja Kościesza, Sales and Marketing Director for Poland, Orco Poland Sp. z o.o.:
The market of luxury investment projects, that is, prestigious luxury apartment buildings, turned out completely immune to the crisis. Demand for exceptional luxury apartments remains stable. I think that in 2011 these trends will grow and accelerate and will radiate to other segments of the residential market. Given the development opportunities in Warsaw and economic growth, we count on even faster business growth, not only in the luxury apartment segment but in the entire sector. I’d like to stress that I’m talking about the segment of truly luxurious apartments, such as Złota 44, which meets the expectations of the most demanding clients in terms of prestige, quality, design and lifestyle. It offers unique apartments with a spectacular view on Warsaw, is designed by a renowned architect, and offers as a wide range of additional services, such as concierge, plus ample leisure opportunities. Like demand, the prices have remained on the same level. Złota 44 is still on sale at the average price of zl.28,000 per sq m of a finished apartment. Since there is no similar offer on the market today, nor is it in the plans, this price will certainly not fall in the short and medium term. We even expect it will go up already within a year.

Judging by the experience so far and the number of customers interested in Złota 44 over the last four weeks since sale was resumed, we can say that interest is very high. That testifies not only to the good financial situation of prestigious clients and their appetite for luxury properties, but also confirms that the luxury apartments we offer reflect client needs and fill a market niche so far undeveloped. In Złota 44, the average apartment size is 150 sq m. If we’re talking about demand trends, it should be added that the talks underway after the launch of the third stage of sale of Złota 44 involve mostly apartments of 150 sq m and more.


Commentary
Marcin Jańczuk from Metrohouse & Partnerzy real estate agents:
Of all our transactions last year, apartments that can be called luxury ones constituted 2.5 percent. Statistically, that is not much, but if you consider the fact that this is a very narrow market, you can’t say there was stagnation in the sector. The group of potential buyers of such properties —just a few percent—still seek interesting offers on the second-hand market. The difference is, there is a significant drop in the number of clients treating luxury apartments as investments (who buy them to later rent them out, believing the prices will grow). Now, luxury apartments are usually bought to meet the clients’ own housing needs. When you look at the transactions in Warsaw, you will note that in most cases the buyers managed to secure themselves better discounts than in the case of popular apartments. The highest difference between the initial and transaction price was 9 percent. Unlike on the popular apartment market, luxury apartment owners are less flexible while setting the initial prices, and are more open to negotiations when an interested client appears.

What are the forecasts for this market segment for this and the following years? Certainly developers will to a lesser extent be interested in carrying out large luxury apartment projects that now require a lengthy and costly investment process and a long sales process. Important features that clients are interested in include a project’s unique character and its limited building size. Both on the primary and secondary market, clients will to a large extent look for luxury apartments that combine the latest technology with a high degree of privacy. The large supply of similar apartments in cold, modern buildings may encourage clients to seek traditional, stylish apartments, for example in renovated tenement houses. Good designs will no doubt succeed and enjoy client interest. However, clients who spend zl.1.5 or 2 million will increasingly expect genuine luxury, not just its substitutes.


Commentary
Anna Hendzelewska, Sales Marketing Manager, Belgravia Polska Sp. z o.o.:
After a slight stagnation on the building market in the wake of banks’ reluctance to hand out mortgages, many of the new projects that were put on hold in 2009 were resumed in the spring of 2010.

Developers have applied for more building permits, but before they start construction, they first want to see how apartments that are currently under construction have been selling so far. Consequently, the number of building permits will not necessarily reflect that of projects in progress, as developers are still being cautious, even though they believe the market is improving. The latest revival on the housing market was mainly triggered by an increase in preferential VAT rates. People who were planning to buy apartments in the beginning of 2011 made up their minds sooner, which shifted the entire demand to the end of 2010. That does not mean, however, that apartments, especially luxury homes, are selling worse. The market has stabilized and, compared with last year, developers are sure to face stiffer competition as they try to attract buyers.
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