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The Warsaw Voice » Real Estate » November 25, 2011
Summing Up 2011
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A Clear Recovery
November 25, 2011   
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Almost all segments of the Polish market for commercial real estate have shown signs of recovery this year.

Despite the turbulence on global markets, Poland may strengthen its leading position on the commercial property market in Central and Eastern Europe, according to the Marketbeat Poland—Autumn 2011 report released by real estate services company Cushman & Wakefield.

Transactions finalized on the market for commercial real estate in the first half of this year totaled 960 million euros, an increase of 23 percent over the same period last year. The growing demand for property was effectively balanced by the growing activity of investment funds, which were selling real estate and, along with developers, became the main force driving the demand. Offices drew the most investment interest, accounting for 55 percent of total transaction volume.

The fastest growth in the first half of this year occurred on the retail market, which grew three times faster than in the first half of 2010. The surge was to a large extent stimulated by Atrium European Real Estate, which bought the Promenada shopping mall in Warsaw for 171 million euros. On the opposite end of the spectrum was the industrial market with transaction volume down by 36 percent on the same period last year.

“If the conditions for investment are still good in the second half of the year, the 2011 transaction volume may be some 2 billion euros higher than last year,” said Wojciech Pisz, head of the Capital Markets Group at Cushman & Wakefield.

The revival on the investment market is also reflected in a report by Jones Lang LaSalle which sums up transactions in the first three quarters of this year. Transactions on the market for commercial real estate between January and the end of September totaled 1.8 billion euros. The office market accounted for 818 million euros, the retail market for 885 million euros, the industrial market for almost 79 million euros, and the hospitality market for 21 million euros. To compare, the total transaction volume last year was worth 1.97 billion euros, including 579 million euros invested in the office market, 1.03 billion euros in the retail market, 288 million euros in the industrial market, and 35 million euros in the mixed-use sector.

There has been a clear revival on the retail market. The most notable transaction in the third quarter of this year, worth over 220 million euros, was the sale of the Magnolia shopping center in Wrocław. Around the same time, following approval from the Anti-Monopoly Office, it was possible to finalize the sale of 50 percent of the Galeria Mokotów shopping mall in Warsaw. According to Jones Lang LaSalle analysts, the total transaction volume in 2011 may exceed that from 2010 and rise above 2.25 billion euros.

ING Bank Hipoteczny, in turn, estimates that the 2011 transaction volume on the market for commercial real estate in Poland will total around 2.5 billion euros, with the retail market accounting for around 1.5 billion euros.

“The figures are testimony to the excellent shape the commercial real estate market is in, as they are comparable to the record figures from 2005 and 2007,” said Krzysztof Borowski, chief real estate market analyst at ING Bank Hipoteczny. “We can see a similar situation on the market for loans to finance the purchase of real estate for investment and construction. Good economic data translates into a high level of retail sales, demand for offices and warehouse space, putting Poland in a leading position among European countries.”

However, due to the continued uncertainty on financial markets, triggered by the debt problems of several European countries, the financing of developer projects is expected to slow down in the coming months and the same goes for the investment market, Borowski said.

New office buildings in Warsaw

Data by Jones Lang LaSalle indicates that the largest number of new offices have entered the market in Warsaw this year - six buildings with a total area of 60,000 sq m. The volume of office space in other major cities remains almost unchanged and only in the Tricity area (Gdańsk, Sopot, and Gdynia) has the supply increased by 1,550 sq m. Developers have been highly active preparing new projects, with around 555,000 sq m of modern office space under way in Warsaw alone and over 354,000 sq m outside Warsaw. Wrocław stands as the most active market among regional cities.

The Jones Lang LaSalle report shows that office properties are still very much sought after by tenants. By the end of the third quarter, lease contracts were signed on around 440,000 sq m in Warsaw and around 228,000 sq m outside Warsaw. “Another quarter of 2011 confirmed that the situation on the office market in Poland is stable and the outlook for most of the markets looks promising,” said Mateusz Polkowski, senior analyst with Jones Lang LaSalle. “This is confirmed by the significant activity of developers across Poland, with over 900,000 sq m of modern office space under construction. The demand for offices, especially in Warsaw, remains sound, and the rents have started to grow, not only in the capital city, but also in Wrocław and Cracow.”

According to the Skyline Tracker Warsaw report by DTZ Insight, 125,000 sq m of modern office space will be completed in Warsaw this year, 33.7 percent less than last year. This low amount of new office space is a result of the economic slowdown and problems with raising funds for office projects in recent years, 2009 in particular. Still, next year the supply is expected to rise to 218,000 sq m, marking a 75-percent increase year on year. Notably, more projects are under construction than in the last two years. The largest projects being developed include the Warsaw Spire (Ghelamco), the Konstruktorska Business Center (HB Reavis), and Miasteczko TP (Bouygues Immobilier).

Shopping centers multiply

The market for retail space is recovering from the crisis as well. According to Cushman & Wakefield, around 300,000 sq m of modern retail space entered the market in the first half of this year, an amount comparable to that in the same period last year. Developers have now started to become increasingly active, but that will not result in a larger number of new shopping centers until after 2013. Shopping centers which opened in 2009-2010 are reporting a gradual increase in sales and visitor turnout, but new projects with 100-percent occupancy prior to opening are a rarity. The most popular are shopping centers in good locations with a proven commercial concept and a stable market position. The highest monthly rents in facilities of this kind in Warsaw reach 75-80 euros per square meter in units 100-150 sq m in size. In other large cities, the rents are 37-40 euros.

Data by the CBRE consulting company, which recently published its annual Poland Retail Destinations 2011 report, shows that, in the first half of this year, Poland had over 8.5 million sq m of all kinds of retail facilities located in 370 schemes, including 24 specialized shopping formats (18 retail parks and six outlet centers).

“This is a small number compared with more developed markets,” said Karina Kreja, Associate Director at CBRE, who compiled the report. “The figure, coupled with weak high streets in Poland, shows the Polish market offers high development potential to both shopping center developers and new chains.”

CBRE predicts that retail facilities delivered this year will house a total of 550,000 sq m of space, up from 360,000 sq m last year. Many small and medium-sized shopping centers have been opened in Poland in the past 18 months, but only three are more than 40,000 sq m in size; the Galeria Victoria shopping center in Wałbrzych is one of them.

Demand for warehouse space rises

The first half of this year was a highly prosperous time for the warehouse market. The demand for warehouse space grew 40 percent and the volume of warehouse space under construction almost doubled from the same period last year. Data by Cushman & Wakefield shows that a total of 941,000 sq m was rented and a further 336,000 sq was under construction. The total volume of warehouse space in Poland totals 6.7 million sq m. The vacancy rate kept declining in all regions, which triggered a slight increase in rents. Rzeszów and Lublin emerged as major new locations for warehouse space.

“Development will not proceed without pre-let agreements, at least for half of the planned space,” said Marek Skrzydlak, an Industrial Department negotiator at Cushman & Wakefield. “New developments are typically built-to-suit schemes, constructed according to specific end-user requirements. Unlike speculative developments, they are more likely to secure bank financing.”
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