A good year and a positive outlook
Although some sectors of the real-estate market lacked some of the buoyancy of 2005, the market in 2006 enjoyed a lot more ups than downs.
Residential
It was an exceptional year for residential price rises, which rocketed in all the largest cities, but completions took a dip. According to the Central Statistical Office (GUS), 75,164 apartments were completed in the first nine months of 2006, down by 2.9 percent year-on-year.
"Despite expectations, along with the price growth there was no increase in the supply of apartments, which together with the growing demand, especially on the part of speculative buyers, has led to an even deeper imbalance on the market, not only in Warsaw but in most bigger cities," says Kazimierz Kirejczyk, president of Reas Konsulting.
Maria Hahn from CB Richard Ellis says that the Polish residential market differs from Ireland, for example, because it is not only the capital city that generates the highest prices. "This year has shown that similar growth could be observed in other cities such as Kraków, Tri-city and Wrocław," says Hahn.
A very fast growth of prices in Kraków made them almost equal to those in Warsaw. "This is connected with the low supply of less expensive apartments and the specifics of the market, where the investment demand is very strong because of the tourist and cultural assets of the city," says Kirejczyk.
Łódź has become the rising star and the market is dominated by two different type of developments: standard apartments for the average buyer; and lofts and a few luxury apartments for wealthy clients. "The loft market is popular only because of investors from outside Łódź," says Kirejczyk.
This year contractors have faced higher costs connected with the construction process. A scarcity of labor and building materials, and an increase in costs, have pushed up residential prices. Madej says many developers will now have to consider sharing a percentage of these higher margins with contractors, rather than paying the builders a fixed price for their work.
Plot prices have also grown significantly, especially in the last months of 2006. A good example is the recent sale of a 28,700-sqm bus depot on ul. Inflancka in Warsaw for zl.13,600 per sqm.
Next year supply should grow by some 20-30 percent. "This will not be enough to slow down the price growth more radically," says Kirejczyk.
Łukasz Madej from Rednet Property Consulting agrees with Kirejczyk on the price growth and he believes that next year prices will be much closer to the price limit and many buyers will be priced out of the market. Hahn says that developers will also construct more quality apartments. "If we compare that to the average price, it will grow," she says.
"If buyers can, they purchase smaller apartments or choose a less attractive part of the city. This is already taking place but will be more frequent, and developers might want to build even smaller apartments than now," says Madej.
Hahn says that next year more buyers will look for single-family houses. "If they have to consider the small difference in the price between an apartment and a house, most will choose houses," says Hahn.
Retail
Ewa Derlatka, a research analyst from DTZ, says that about 500,000 retail sqm have been delivered in 2006, which is 100,000 sqm less than in 2005. According to DTZ, 2007 could be a record year as over 1.14 million sqm of retail market development has already been announced by investors.
"2006 was a good year, especially because of a number of interesting projects which have just been announced or which work has just started on," says Derlatka. "Work progress on the Millenium Hall in Rzeszów and three projects in Białystok are worth mentioning."
A recent report by Jones Lang LaSalle (JLLS) reveals that the most promising markets are outside the major Polish cities. Beatrice Mouton, a retail specialist with JLLS, says that the retail market in Poland is moving further and deeper into the regions as both retailers and developers recognize that the population of these smaller cities has a growing disposable income. The report focuses on eight cities, Bielsko-Biała, Białystok, Bydgoszcz, Gorzów Wielkopolski, Kielce, Rybnik, Lublin and Rzeszów, whose combined markets account for roughly 60 percent of retail development in the country.
2006 was also a year of major consolidation in the hyper- and supermarket sector. Two companies, Casino and Ahold, announced that they were closing their retail operations in Poland.
Tesco, which until the middle half of 2006 had 108 outlets in Poland, received permission from the monopolies office to take over 142 Leader Price shops, which previously were owned by Casino. However, the French company did not decide to leave Poland's market but only to shift its interests to development activities. Currently, the company is developing two shopping malls in Koszalin and Dąbrowa Górnicza, both of which will amount to about 30,000 sqm.
Secondly, Dutch firm Ahold announced at the beginning of November that it was closing all of its Polish operations. Just one month later Carrefour sealed a EUR 375 (zł.1,425) million deal to buy Ahold's 179 Albert supermarkets and Hypernowa's 15 hypermarkets. In addition to these deals, Real also took over all of Geant's hypermarkets.
Offices
With Rondo One, Trinity I, Topaz, Salzburg, Centrum Polskiej Farmacji and Prosta Office Center, the year 2006 was anything but quiet on the office market.
Andrzej Brochocki, the owner and president of Kancelaria Brochocki, says the year was extremely good for office developments. "Rent prices have gone up and the fall of yields has contributed to the increased value of developments," he says.
The highest increase took place in the prestigious A-class developments located in the center of Warsaw. "The prices often grew by some 25 percent of the initial price per sqm," says Magdalena Bednarska, a negotiator at King Sturge.
Prices started growing last year but this year is an exception, says Robert Karniewski from Colliers International. "What is more interesting is that despite the boom, tenant activity has not fallen but has increased. The number of transactions and the amount of space leased will be higher than last year," he says.
Brochocki says that buildings which some two years ago were leased out for less than EUR 15 (zł.57) per sqm today have prices higher than EUR 20 (zł.76) per sqm. "The office space in central locations is slowly becoming fully leased and we can expect that in a year's time larger tenants will have a problem finding space in the center," says Brochocki.
Karniewski believes the prices next year should also grow by six to seven percent, which is a growth of about EUR 1 (zł.3.80) per sqm. "In 2008 prices will slightly fall in the center," he says.
Within the next couple of years the center will have a few more developments. "The level of supply and demand should be balanced in locations outside the city center. There should always be a few-percent vacancy," says Brochocki.
Analysts say that 2007 will be poor in terms of new office projects. According to Bednarska, this will result in price growth and will make tenants wait for higher supply in 2008, particularly in Mokotów. "In 2008 and the beginning of 2009 some 260,000 sqm is planned for completion in Mokotów. Assuming that about 60 percent is finished, the prices in new developments may fall by some 15 percent near ul. Domaniewska. The vacancy rate may rise from the current three percent to some 11-12 percent, but not earlier than in two years," says Karniewski.
So far analysts haven't taken into account the labor-cost factor. Experts say that the cost may rise by 15-20 percent within the next 12 months. "If that is confirmed rents could rise even more in new developments but also in offices which are fitted-out," adds Karniewski.
Warehouses
After the EU accession, the CEE market faced strong demand for modern warehouse facilities and according to a DTZ report, the current total stock of modern, rentable warehousing space amounts to about 2.37 million sqm, which means that is has doubled since the end of 2003.
The main regional logistic and industrial locations include: the Central Poland region, which is between Łódź, Piotrków Trybunalski and Stryków; the Silesia region, including upper and lower Silesia which is along the A4 highway; Poznań; and recently the Tri-city area (Gdańsk, Gdynia and Sopot).
"Depending on their strategy, clients are deciding to build warehouses in Central Poland or are opting for a network of regional distribution centers," says Maciej Madejak, the vice president of Prologis.
Statistics indicate that Upper Silesia has the fastest growing industrial and logistics properties. The biggest advantages of this area is its location close to the Czech and German borders as well as its vicinity to the future crossroads of the A1 and A2 motorways.
"Vacancy rates are fluctuating and are currently at the level of 4.3 percent. When compared to 15 percent of vacant space at the end of 2005 it shows that absorption is very strong in the region," says Kamila Wykrota, a research analyst from DTZ. "Headline rental rates are quite stable and range from EUR 3 to EUR 3.3 [zł.11.40-12.54] per sqm per month."
Madejak says that Tricity area will also experience strong development in the logistic sector and will be a new addition to Poland's warehouse map.
"We have been expecting the Tri-city's warehouse development for two years," says Wykrota. "Currently two modern schemes are under construction, totaling 46,000 sqm of modern space. Rental rates are at around EUR 3.30 [zł.12.54] per sqm per month."
Predictions for 2007 are positive and Wykrota says there are no visible symptoms that the warehouse market could slow down. Madejak belives that 2007 will be another good year for the sector and logistic centers located in the south of Poland as well as those near Warsaw will continue to be attractive.
"Most probably 2007 will not achieve any spectacular record, but a high and a static demand is also created by manufacturers who have already relocated activities from Western Europe towards the low-cost region of CEE." says Wykrota.
